SEBI Weighs Physical Settlement In F&Os

The market watchdog is mulling to bring in more control in the F&O market such that excessive speculation can be curbed in it. For it Securities and Exchange Board of India is considering introduction of physical or delivery based settlement in the equity F&O segment. The cash market trade in the derivatives is expected to curb or reduce the extent of price manipulation as well as is believed to rake in higher revenue for the government.

As of now physical settlement is followed in the stock markets but the settlement in F&O contract is done by paying the difference between the value of underlying security and the strike price that is subject to price manipulation.

The individual buyer of stock futures is not buying the underlying stock instead he just promises to buy at some future date which is seldom exercised or obligated. So, the 'cash settled' futures transaction do not mean ownership obligation in the hands of the buyer of the futures contract.

Due to trading in derivatives, India has emerged as the second most speculative markets globally after South Korea. This has made the government as well as SEBI to tread on a path of caution.

Further it is expected that any surge in cash volumes in the segment is likely to give an impressive impetus to securities transaction tax (STT) collection.

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