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Sunday, July 15, 2001












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Exercise & assignment to options

As far as options and futures are concerned, the National Securities and Clearing Corporation has announced the following provisions for the Futures & Options Segment:

Exercise: Exercise means the invocation of right, in accordance with and subject to Rules, Byelaws and Regulations of Clearing Corporation, by the option holder.

Type of Exercise: Type of exercise for an option contract may be Voluntary or Automatic or such other type as may be specified by the relevant authority from time to time.

Voluntary Exercise: Voluntary exercise is the exercise of option contract by a clearing member, at his volition, subject to the rules, bye-laws and regulations.

Automatic Exercise: Automatic exercise is the exercise of all in-the-money strike price option contracts, which are automatically deemed to be irrevocably exercised, on the expiration date, subject to the rules, bye-laws and regulations.

Notwithstanding the foregoing, if a clearing member desires not to exercise an in-the-money strike price option contract, it shall be the responsibility of such clearing member to give appropriate instructions in accordance with Regulation 5A.2(c).

Exercise of an option contract at a strike price other than in-the-money strike price shall be at the discretion of the relevant authority and subject to the requirements as may be specified by the relevant authority from time to time.

Exercise Mechanisms: Exercise mechanism may be interim or final or such other mechanism as may be specified by the relevant authority from time to time.

* Interim exercise is the exercise of an option contract at anytime prior to expiration day or such other day and/ or time as may be specified by the relevant authority from time to time. Interim exercise is voluntary. Settlement of such contracts shall be in accordance with the provisions specified by the relevant authority for Exercise Settlement 5A4.1.

* Final Exercise is the exercise of an option contract on or before expiration time on expiration day or such other day and/ or time as may be specified by the relevant authority from time to time. Final exercise may be automatic or voluntary.

Settlement of such contracts shall be in accordance with the provisions specified by the relevant authority for Exercise settlement.

Exercise procedure: The procedure for exercise of an option contract by a clearing member shall be as specified hereinafter or such other procedure as may be specified by the relevant authority from time to time:

Notice of exercise: The relevant authority may specify from time to time the provisions regarding exercise of option contracts including:

* type of members who may exercise

* facility/ system for tendering notice of exercise

* day/s when exercise notice may be submitted

* minimum lot size of option contracts which may be exercised

* time period within which exercise notice may be submitted

* maximum number of option contracts which may be exercised on a day or within a period, for a member or or for the market

* strike price (i.e. in-the-money and/or at-the-money and/or out-of the-money) at which the option contract may be exercised

* such other conditions as it deems fit

Notice for exercise shall be deemed to be on long positions in an option contract at the close of trading hours on the day the notice of exercise has been tendered, or such other day/ time as may be specified by the relevant authority from time to time. No clearing member shall revoke or modify any exercise notice so submitted except as provided under the rules, bye-laws and regulations.

Acceptance of Exercise: An exercise notice which has been tendered in accordance with the provisions as detailed in 5A.2(c)1 may be considered for acceptance by the relevant authority. Such exercise notices received by the relevant authority shall be declared as valid or invalid after processing, at the close of trading hours on the day on which the exercise notice has been tendered, or on such other day or time, as may be specified by the relevant authority from time to time. All valid exercise notices will be accepted by the relevant authority and invalid exercise notices shall stand automatically rejected by the relevant authority.

Notwithstanding the foregoing, the relevant authority may, in the interest of market, declare an exercise notice as invalid where: the entity who has tendered a notice for exercise has no open long positions in that contract, at the time when such notice is processed by the relevant authority or any other reason.

Revocation of notice: Unless permitted otherwise by the relevant authority, all valid exercise notices shall be irrevocable.

Restrictions on Exercise: The relevant authority shall have an authority to impose such restrictions on exercise in any option contract as it may deem necessary in the interest of maintaining a fair and orderly market in the option contract or in the underlying securities or otherwise may deem advisable in the public interest or for the protection of investors or any other reason as the relevant authority may deem fit. Any exercise in contravention of such restriction shall be automatically invalid and not enforceable.

Exercise Settlement Price: Exercise settlement price, in respect of Exercise Settlement, is the closing price of the underlying security on the day of exercise or such other price as may be decided by the relevant authority from time to time.

Exercise Settlement Value: Exercise settlement value, in respect of Exercise settlement, means the difference between the strike price and the exercise settlement price for each unit of trading of the option contract for the purpose of settlement.

Assignment: Assignment means an allocation of an option contract, which is exercised, to a short position in the same option contract, at the same strike price, for fulfillment of the obligation, in accordance with the procedure as may be specified by the Relevant Authority, from time to time.

Assignment methods: Assignment methods may be proportional or random or such other methods as may be specified by the relevant authority from time to time.

* Proportional Assignment is an allocation of exercised option contracts, proportionally, in market lots, as specified for the relevant option contract, to one or more than one short positions in the option contract with the same series, in accordance with the procedure as may be specified by the relevant authority from time to time.

* Random Assignment is an allocation of exercised option contracts, randomly, in market lots, as specified for the relevant option contract, to one or more than one short position, in the option contract with the same series, in accordance with the procedure as may be specified by the relevant authority from time to time.

Assignment procedure: The relevant authority may specify the assignment procedure, including day and/ or time when assignment will take place.

Exercise notices accepted by clearing corporation as valid will be assigned in accordance with the assignment procedure, to short positions in the option contracts, with the same series, to the clients of clearing members or trading members or clients of trading members, for fulfillment of obligations. Such short positions, to which the exercised option contracts are assigned, shall be termed as assigned option contracts for the purpose of settlement. The assigned member shall be liable to fulfill his obligation in accordance with the Exercise settlement procedure specified for the option contract and the Rules, Bye-laws and Regulations.

Exercise Settlement: Exercise settlement may be Interim or Final. The relevant authority may specify from time to time the procedure, mode, method, days, time etc. for Interim Exercise settlement and final exercise settlement.The relevant authority may specify the exercise type and mechanism of settlement from time to time.

Mode of settlement: Mode of settlement may be either cash settled or by creation of obligations in underlying segment or such other mode as may be specified by the relevant authority from time to time. Settlement by creation of obligations in underlying segment may be either cash based or delivery based.

source : www.nseindia.com


Section  : Personal Finance
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