Important update on physical settlements of contracts with a February 2022 expiry
As per a SEBI mandate, physical settlement is compulsory if a trader holds a position in any Stock F&O contracts on expiry date.
What is physical settlement?
In a Stock F&O contract, when there is an open position that has not been squared off by its expiry date, physical settlement takes place. This implies they have to physically give/take delivery of Stocks to settle the open transactions instead of settling them with cash.
Examples of physical settlement:
Future
Long positions of 1 lot of Reliance, 250 quantity at Rs. 2000 i.e. Rs. 5 lakh contract value
F&O = 20% charges i.e. Rs. 1,00,000. This means, you are required to give Rs. 1 lakh, but if you decide to physically settle then you need to have a complete contract value of Rs. 5 lakhs.
Short positions of 1 lot Reliance 250 quantity at Rs. 2000 i.e. Rs. 5 lakh contract value
F&O = 20% charges i.e. Rs. 1,00,000. This means, you are required to give Rs. 1 lakh, but if you decide to physically settle then you need to have the holdings of 250 quantity of Reliance and Rs. 1 lakh margin money till expiry date.
Option
Long - 1 lot of Reliance, 250 quantity for strike price of Rs. 2000 Call (CE) Options.
If the underlying price of Reliance is greater than the strike price of Rs. 2000, then the contract is said to be ITM (In-The-Money). If you wish to go for physical settlement, you need to maintain a free ledger balance of Rs 5 Lakh in your account, else physical settlement would not be done.
Long - 1 lot of Reliance, 250 quantity for Strike price of Rs. 2000 Put (PE) Options.
If the underlying price of Reliance is lesser than strike price of Rs. 2000, then the contract is said to be ITM (In-The-Money). If you wish to go for physical settlement, you need to provide the Stocks (shares) equal to the lot quantity positioned to be available in Demat account, else physical settlement would not be done.
Please note --
Short ITM PE options, treatment would be similar to Long ITM CE options.
Free ledger balance equal to the contract value to be maintained.
Short ITM CE options, treatment would be similar to Long ITM PE options.
Holdings shares of lot quantity positioned to be available in Demat account.
What is the process for Physical Settlement on Upstox?
To opt for physical settlement on Upstox, you need to provide your consent first and here are the details for the same:
To provide your consent for physical settlement of open Stock F&O contract(s) with February-2022 expiry visit the ‘Profile’ section on your Upstox account on our App / Web and give your consent from here before EOD on Tuesday, 22nd February 2022.
Based on your consent, Upstox will evaluate whether your position qualifies for physical settlements and if there is sufficient ledger balances / holdings (whichever applicable) is available.
Kindly, plan your trades keeping in mind that you will not be able to trade in fresh positions in the current February 2022 expiry F&O contracts from Wednesday, 23th February 2022 onwards.
Correspondingly, position conversion(s) on carry forward of any stock futures positions shall also not be permitted.
