SEBI modifies the exercise mechanism of options contracts on commodity futures

Circular No. SEBI/HO/CDMRD/DNP/CIR/P/2022/01, Dated: 03-01-2022

SEBI vide Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/55dated June 13, 2017, permitted Commodity Derivatives Exchanges to introduce trading in Options on Commodity Futures and stipulated guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures.

Based on feedback received from Stock Exchanges and the recommendations of the Commodity Derivatives Advisory Committee, the SEBI had decided to change the Exercise Mechanism of options contracts on commodity futures. Now ‘All In the Money’ option contracts shall be exercised automatically, unless ‘contrary instruction’ has been given. ‘All Out of the Money’ 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.

SEBI further clarified that the circular shall be effective from the date of the new series of commodity derivatives launched on or after February 1, 2022and exercise mechanism for Options on Futures referred to in any other guidelines prescribed by SEBI shall be as per the instant Circular.

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