Announcements

Indian Energy Exchange Limited (IEX) conducted a meeting with its Board of Directors on 31st October, 2021. As per this meeting, it has declared, to the Exchange, an issue of Bonus Shares in the ratio of 2:1. The record date for the issue of Bonus Shares is 6th December 2021.

What are Bonus Shares?
These are additional shares given by a company to existing shareholders for free as an alternative to distributing dividends.

How does this corporate action impact Futures & Options Contracts?

Impact on Futures Contract: 

• The adjusted base price shall be arrived at by dividing the old futures price by the adjustment factor.
• The adjusted market lot shall be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 3750

Impact on Options Contract: 

• The adjusted strike price shall be arrived at by dividing the old strike price by the adjustment factor. 
• The adjusted market lot shall be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 3750.

Adjustment factor for the bonus issue of A: B is defined as (A+B)/B. In the case of IEX the adjustment factor is (2+1)/1 = 3 since the bonus issue ratio is 2:1.

For all positions taken before 3rd December 2021, you may see a slight deviation in the carried forward (c/f) average price of IEX due to the corporate action mentioned above.

To know more, read the circular here.

All open position(s) in the F&O segment with a 25-11-2021 expiry date (except those who have opted for physical settlement) should be squared off before 12:00 PM on 25th November 2021 to avoid any further action by Upstox.

What does this mean?

In an F&O contract, when there is an open position that has not been squared off by its expiry date, physical settlement takes place. This implies the physical delivery of stocks to settle the open transactions instead of settling them with cash. 

Here’s an example – A trader bought futures for XYZ (lot size – 5000) at Rs. 100, so the contract value is Rs. 5,00,000. On expiry day, if the settlement price for XYZ is Rs. 102 and the contract has been settled on a cash basis, the trader will get a profit of Rs. 10,000. If the contract has not been settled, physical settlement takes place, which means the trader will have to pay an amount of Rs. 5,10,000 (as per settlement price of Rs.102, lot size 5000) and 5000 shares will be delivered to his Demat account as per the T+2 days settlement cycle.

As per our latest announcement mentioned here, we required your consent in order to physically settle your transactions.

However, you have not submitted your consent and if you do not square-off your positions before 12:00 PM on 25th November 2021, then here’s what will happen:

A) Auto-square off by Upstox: 

If you cannot square off your positions before the cut-off time (i.e.,12:00 PM on 25th November 2021), we will square them off at the prevailing market rates. Such square-off orders will be placed by our team as “Market Orders” and since order matching happens at the Exchange level, we shall not be liable for the rate at which they are executed.

B) Physical settlement by the Exchange:

If we cannot square off your positions due to market operational reasons, positions will be physically settled by the Exchange, and you will have to bear the costs (penalties & losses) arising from it. This means - 

• For a long open position (Long Futures, Long Call Options, Short Put Options)

Your long open position will get converted into a ‘Buy Equity Delivery,’ and you will be liable to pay the entire settlement amount as the holder of the position.

• For a short open position (Short Futures, Short Call Options, Long Put Options)

Your short position will get converted into a ‘Sell Equity Delivery,’ and you as a holder of the position will be liable to deliver the shares; else, an auction process will be applicable.

To avoid this entire process, we recommend squaring off your trades before 12:00 PM on 25th November 2021.

Feel free to refer to the exchange’ circular here.

On account of Guru Nanak Jayanti, markets will be closed on Friday, 19th November 2021. Trading will resume on Monday, 22nd November 2021.

MCX will be closed on Friday, 19th November 2021 for the morning session. The second session (5:00 PM to 11:55 PM) will take place as usual.

Please note: All fund withdrawal requests placed on Friday will be processed on Saturday, 20th November 2021.

As per a SEBI mandate, physical settlement is compulsory if a trader holds a position in any Stock F&O contracts on expiry date.

What is physical settlement?
In a Stock F&O contract, when there is an open position that has not been squared off by its expiry date, physical settlement takes place. This implies they have to physically give/take delivery of Stocks to settle the open transactions instead of settling them with cash.

Examples of physical settlement:

Future

Long positions of 1 lot of Reliance, 250 quantity at Rs. 2000 i.e. Rs. 5 lakh contract value F&O = 20% charges i.e. Rs. 1,00,000. This means, you are required to give Rs. 1 lakh, but if you decide to physically settle then you need to have a complete contract value of  Rs. 5 lakhs.

Short positions of 1 lot Reliance 250 quantity at Rs. 2000 i.e. Rs. 5 lakh contract value F&O = 20% charges i.e. Rs. 1,00,000. This means, you are required to give Rs. 1 lakh, but if you decide to physically settle then you need to have the holdings of 250 quantity of Reliance and Rs. 1 lakh margin money till expiry date.

Option

Long - 1 lot of Reliance, 250 quantity for strike price of Rs. 2000 Call (CE) Options.

If the underlying price of Reliance is greater than the strike price of Rs. 2000, then the contract is said to be ITM (In-The-Money). If you wish to go for physical settlement, you need to maintain a free ledger balance of Rs 5 Lakh in your account, else physical settlement would not be done.

Long - 1 lot of Reliance, 250 quantity for Strike price of Rs. 2000 Put (PE) Options.

If the underlying price of Reliance is lesser than strike price of Rs. 2000, then the contract is said to be ITM (In-The-Money). If you wish to go for physical settlement, you need to provide the Stocks (shares) equal to the lot quantity positioned to be available in Demat account, else physical settlement would not be done.

Please note -- 

• Short ITM PE options, treatment would be similar to Long ITM CE options.
  Free ledger balance equal to the contract value to be maintained.
• Short ITM CE options, treatment would be similar to Long ITM PE options.
  Holdings shares of lot quantity positioned to be available in Demat account.

What is the process for Physical Settlement on Upstox?
To opt for physical settlement on Upstox, you need to provide your consent first and here are the details for the same:

• To provide your consent for physical settlement of open Stock F&O contract(s) with November-2021 expiry visit the ‘Profile’ section on your Upstox account on our App / Web and give your consent from here before EOD on Tuesday, 23rd November 2021.
• Based on your consent, Upstox will evaluate whether your position qualifies for physical settlements and if there is sufficient  ledger balances / holdings (whichever applicable) is available.
• Kindly, plan your trades keeping in mind that you will not be able to trade in fresh positions in the current November 2021 expiry F&O contracts from Wednesday, 24th November 2021 onwards. 
• Correspondingly, position conversion(s) on carry forward of any stock futures positions shall also not be permitted.

What other impact could this have on your positions?
Your position will automatically be squared off in case:

• You have not provided your consent for physical settlement
• You provided your consent for physical settlement and do not have Ledger Value (equal to contract value) / holdings available for the physical settlement of your positions.
• In a case of funds / holdings not being available for all the open positions, we will execute square offs for all the positions. Thus no partial funds / holdings evaluation for the expiring positions will be considered by our team.

What else to keep in mind?
Delivery margins would be applicable as per Exchange norms on all the existing long ITM (In The Money) stock option positions in a staggered manner as explained below:

• 10% of delivery margins computed on expiry -4 days EOD (Friday)
• 25% of delivery margins computed on expiry -3 days EOD (Monday)
• 45% of delivery margins computed on expiry -2 days EOD (Tuesday)*
• 70% of delivery margins computed on expiry -1 day EOD (Wednesday)*

• To avoid margin shortages, Upstox would be blocking such (above mentioned) delivery margins from Beginning of the Day (BOD) instead of End of the Day (EOD).
• If the positions are not squared off for any reason (e.g: non-liquidity), then the contract would have to be settled physically and you would be liable to pay the entire amount of the settlement.

* If you have opted for physical settlement, you would be required to fulfil the entire funds (contract value) / holdings requirement by EOD on Tuesday, 23rd November 2021.

In case of spread contracts, you are advised to provide margins for both the legs  since the risk of one leg square off by you anytime would result in physical settlement of the other leg.

Brokerage in Physical settlement:

Since there is a substantial increase in effort and risk to settle these F&O positions resulting in physical delivery, if F&O positions result in physical delivery brokerage will be 0.25% of the physical settled value. For all the netted off positions brokerage will be 0.1% of the physical settled value. All physical settled contracts (Futures & Options) will also carry an applicable Exchange charge.

And that’s all. Keep a watchful eye on this page for more updates from Upstox!