Friday, July 9, 2010

Introduction of Physical Settlement in Derivatives Segment

SEBI chairman yesterday came and said about the introduction of Physical settlement in Derivatives markets in India. It is a welcome move for the market.

Such move will change the paradigm of Trading and Arbitrage and the players will have to get accustomed to new settlement procedure.

It needs to be seen as to how SEBI comes up with the guidelines on Physical settlement because Settlement of Derivatives segment is done by Clearing members and not by trading members, whereas All brokers are also effectively clearing members of the exchange. What about Professional Clearing members ? Does it mean that SEBI will allowing transferring Trading members position on Brokers Capital market books/ Custodian on Settlement days ? What about exercise of American Options ?

Also Will SEBI give opportunity to player to close trades after the assignment of options ?

What About STT ? What rate would that be charged ?

It will help arbitrageurs to not concentrate on squaring of the position but can concentrate on creating new positions. I guess spreads will come down and backwardation will not be high.

I hope new rules not only help institutional players but are Investors friendly

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