Physical settlement of NSE F&O contracts

As per the NSE’s circular no. FAOP37594, any cash settlement will not be allowed on F&O contracts. Currently, it is limited up to a certain number of scrips but by October 2019, it will be applicable to all F&O scrips that are listed in the derivatives segment.  The list of F&O contracts in which physical settlement is allowed is here

What is physical settlement?

On the day of expiry, for a futures contract and or for an ITM options contract, the delivery of the actual underlying share is transferred to the client’s demat account on T+2 days for a buy side transaction. The shares are debited from the demat account in case of a short position.

How does physical settlement works in Upstox?

At Upstox, users don’t have the option to opt for a physical settlement. On expiry day, our RMS team squares off all open positions at 2.30 pm, hence it doesn’t qualify for a physical settlement. 

What happens if the position is not squared off until the end of session on expiry day?

If a position is not squared off due to any reason, in case of a 

  • buy position - User will receive the shares in his demat and he will have to pay the entire amount required. In case the user is not able to fulfil the obligation of paying the amount then the shares will be sold by Upstox to recover the same.
  • short position - User will need to deliver the shares from his demat account and if the user doesn’t have the same, the shares will be auctioned to close the settlement process.

Additionally, any losses or penalties arising from the entire settlement process would be borne by the client entirely.