Sebi proposes devolving ITM single stock options into futures contracts 1 day before expiry
Sebi) is mulling over a framework to devolve In-The-Money (ITM) single stock option contracts into futures, one day prior to expiry. This is aimed at mitigating the potential risks arising out of the sudden movement of Out-of-The-Money (OTM) option contracts to ITM option contracts near expiry.
On Thursday, Sebi released a consultation paper on this seeking comments by December 26, 2024.
The public feedback will be on whether the proposal of devolving options into stock futures, one day ahead of the expiry is an appropriate measure to mitigate the potential risks arising out of the sudden movement of OTM option contracts to ITM option contracts near expiry. This could lead to physical delivery obligations in the derivative segment.
“This change is intended to mitigate potential risks associated with scenarios where significant obligations may arise in the context of physical settlement requirement in single stock derivatives, when an OTM option unexpectedly becomes ITM due to sudden price movements near market close on expiry day," the consultation paper said.
The conversion to stock futures will be based on volume-weighted average price (VWAP) of the stock in the last 30 minutes in the cash segment.
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