The Securities and Exchange Board of India (SEBI) has amended the exercise mechanism of options contracts on commodity futures. The new framework will be effective from the date of the new series of commodity derivatives launched on or after February 1, 2022.
Based on feedback received from Stock Exchanges and their commendations of the Commodity Derivatives Advisory Committee of SEBI, it has been decided to make changes in the Exercise Mechanism of options contracts on commodity futures. Accordingly, the existing para 5 of Annexure 1 to the Circular dated June 13, 2017 stand deleted.
On expiry, the mechanism shall be adopted by Exchanges for the exercise of the options contracts wherein all In the money (ITM) option contracts shall be exercised automatically, unless ‘contrary instruction’ has been given by long position holders of such contracts for not doing so. All Out of money (OTM) option contracts shall expire worthlessly. All exercised contracts within an option series shall be assigned to short positions in that series in a fair and non-preferential manner.
The Exchanges are advised to take steps to make necessary amendments to the relevant bye-laws, rules, and regulations for the implementation of the same, bring the provisions of this circular to the notice of the members of the Exchange and also disseminate the same on their website, communicate to SEBI, the status of the implementation of the provisions of this circular.
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