Settlement Mechanism
Settlement of futures contracts on index and individual securities
The positions in the futures contracts for each member is marked-to-market to the daily settlement price of the futures contracts at the end of each trade day.
The profits/ losses are computed as the difference between the trade price or the previous day's settlement price, as the case may be, and the current day's settlement price. The CMs who have suffered a loss are required to pay the mark-to-market loss amount to NSE Clearing which is passed on to the members who have made a profit. This is known as daily mark-to-market settlement.
Theoretical daily settlement price for unexpired futures contracts, which are not traded during the last half an hour on a day, is currently the price computed as per the formula detailed below:
F = S * e rt
where :
F = theoretical futures price
S = value of the underlying index
r = rate of interest (MIBOR)
t = time to expiration
Rate of interest may be the relevant MIBOR rate or such other rate as may be specified.
After daily settlement, all the open positions are reset to the daily settlement price.
CMs are responsible to collect and settle the daily mark to market profits / losses incurred by the TMs and their clients clearing and settling through them. The pay-in and pay-out of the mark-to-market settlement is on T+1 days (T = Trade day). The mark to market losses or profits are directly debited or credited to the CMs clearing bank account.
Option to settle Daily MTM on T+0 day
Clearing members may opt to pay daily mark to market settlement on a T+0 basis. The option can be exercised once in a quarter (Jan-March, Apr-June, Jul-Sep & Oct-Dec). Clearing members who wish to opt to pay daily mark to market settlement on T+0 basis shall intimate the Clearing Corporation as per the format specified in specified format.
Clearing members who opt for payment of daily MTM settlement amount on a T+0 basis shall not be levied the scaled up margins.
The pay-out of MTM settlement shall continue to be done on T+1 day basis.
On the expiry of the futures contracts, NSE Clearing marks all positions of a CM to the final settlement price and the resulting profit / loss is settled in cash.
The final settlement of the futures contracts is similar to the daily settlement process except for the method of computation of final settlement price. The final settlement profit / loss is computed as the difference between trade price or the previous day's settlement price, as the case may be, and the final settlement price of the relevant futures contract.
Final settlement loss/ profit amount is debited/ credited to the relevant CMs clearing bank account on T+1 day (T= expiry day).
Open positions in futures contracts cease to exist after their expiration day
Settlement Procedure
Daily MTM settlement on T+0 day
Clearing members who opt to pay the Daily MTM settlement on a T+0 basis would compute such settlement amounts on a daily basis and make the amount of funds available in their clearing account before the end of day on T+0 day. Failure to do so would tantamount to non payment of daily MTM settlement on a T+0 basis. Further, partial payment of daily MTM settlement would also be considered as non payment of daily MTM settlement on a T+0 basis. These would be construed as non compliance and penalties applicable for fund shortages from time to time would be levied.
A penalty of 0.07 % of the margin amount at end of day on T+0 would be levied on the clearing members. Further, the benefit of scaled down margins shall not be available in case of non payment of daily MTM settlement on a T+0 basis from the day of such default to the end of the relevant quarter.
Settlement of options contracts on index and individual securities
Premium settlement is cash settled and settlement style is premium style. The premium payable position and premium receivable positions are netted across all option contracts for each CM at the client level to determine the net premium payable or receivable amount, at the end of each day.
The CMs who have a premium payable position are required to pay the premium amount to NSE Clearing which is in turn passed on to the members who have a premium receivable position. This is known as daily premium settlement.
CMs are responsible to collect and settle for the premium amounts from the TMs and their clients clearing and settling through them.
The pay-in and pay-out of the premium settlement is on T+1 day (T = Trade day). The premium payable amount and premium receivable amount are directly debited or credited to the CMs clearing bank account.
Final Exercise settlement is effected for option positions at in-the-money strike prices existing at the close of trading hours, on the expiration day of an option contract. Long positions at in-the money strike prices are automatically assigned to short positions in option contracts with the same series, on a random basis.
For index options contracts and options contracts on individual securities, exercise style is European style. Final Exercise is Automatic on expiry of the option contracts.
Option contracts, which have been exercised, shall be assigned and allocated to Clearing Members at the client level.
Exercise settlement is cash settled by debiting/ crediting of the clearing accounts of the relevant Clearing Members with the respective Clearing Bank.
Final settlement loss/ profit amount for option contracts on Index is debited/ credited to the relevant CMs clearing bank account on T+1 day (T = expiry day).
Final settlement loss/ profit amount for option contracts on Individual Securities is debited/ credited to the relevant CMs clearing bank account on T+1 day (T = expiry day).
Open positions, in option contracts, cease to exist after their expiration day.
The pay-in / pay-out of funds for a CM on a day is the net amount across settlements and all TMs/ clients, in F&O Segment.
Updated on: 03/01/2023
