Hi, guys, this news is about squaring off the position before exercising on the expiry. That's it. Whoever sells first, need to buy later before expiry. so close the position before expiry. that's is it. nothing big deal here. regardless of whether someone buys or sell first, he needs to close the position before expiry, else he obligated to pay cash or stocks.
no way this is going to reduce the participant volume.
this is not new. It is now only we get matched to international markets.
In fact, personally, I congratulate the regulator for this move. Because it is what makes people understand the real meaning of derivative instruments. Neither futures nor options are standalone trading instruments. They are derived products from equities and indexes.
You have forgotten big volume options writers case, they usually go for the settlement. As they already hedge position with another way to minimize loss. They don't need to pay STT as sold first.
It's is also very difficult to square off big positions on OTM strikes in the last few weeks of expiry (they easily hedge the position with other strikes and leave it for settlement). You can see huge orders are already pending @0.05 paise on last day of settlement due to no match of bid-ask.
Take the simple example you ->option writer, sold big volume options for positional trade, after some day that strike of the option contract become illiquid, if there is no opposite party to the trade, how do you square off especially big volumes?
Maybe clearly it is going for a big winning position @settlement but you can't square it off (as there is no other side to match your big volume).
Option writers always try to minimize the risk, most of them would skip such stocks. The result will be wider bid-ask, option buyers (small traders) will not get the fair price with the absent of options writers (the other side).
Lets, watch and see the effect of those 46 stocks for another 1-2 year. I think most of them will be out of F&O list as volume will dry up slowly. SEBI already set min volume criteria and as a punishment such 46 low volume stock chosen for physical settlement. SEBI will review volumes on those 46 stocks every 6 months to take further action.
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SEBI wanted to experiment worst things on bad boys (the guinea pig) first.
A good positive experiment usually first tested on Good Boyes toppers and bad punishment to the bottom of the class.
Quote:-
To begin with, Sebi said that
stocks which are currently in derivatives but fail to meet any of the enhanced criteria would be physically settled.
They will stop the experiment if most of the guinea pig dies.
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Just like previous STT Trap now there is more dangerous Physical Settlement Trap the beginners.
And this time this trap is not for only beginners but may hurt pro options writers too.