Wednesday, 4 December 2019

Unit 11: Clearing and Settlement

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                                                  Unit 11: Clearing and Settlement    




National Securities Clearing Corporation Limited (NSCCL) undertakes clearing and settlement of all trades executed on the futures and options (F&O) segment of the NSE.

Clearing and settlement activities in the F&O segment are undertaken by NSCCL with the help of the Clearing Members and Clearing Banks.

In the F&O segment, some members, called self-clearing members, clear and settle their trades executed by them only either on their own account or on account of their clients.

Funds settlement takes place through clearing banks.

The clearing mechanism essentially involves working out open positions and obligations of clearing (self-clearing/trading-cum-clearing/professional clearing) members.

All futures and options contracts are cash settled, i.e. through exchange of cash.

The underlying for index futures/options of the Nifty index cannot be delivered.

Options contracts have three types of settlements, daily premium settlement, exercise settlement, interim exercise settlement in the case of option contracts on securities and final settlement.

In case of index option contracts, all open long positions at in-the-money strike prices are automatically exercised on the expiration day and assigned to short positions in option contracts with the same series on a random basis.

All futures and options contracts are cash settled, i.e. through exchange of cash.

The underlying for index futures/options of the Nifty index cannot be delivered.

These contracts, therefore, have to be settled in cash.

Futures and options on individual securities can be delivered as in the spot market.

However, it has been currently mandated that stock options and futures would also be cash settled.

The settlement amount for a CM is netted across all their TMs/clients, with respect to their obligations on MTM, premium and exercise settlement.


Clearing Bank: A clearing bank is a banking institution that is a member of a national check clearing network that has the ability to approve or clear checks for payment, even if those checks are not written on accounts associated with that bank.

Clearing Corporation: Clearing Corporation for the purpose of these regulations means the Futures & Options Segment of the National Securities Clearing Corporation Limited or any other body which may be identified by the F&O Segment of the Exchange for the purpose of performing the clearing and settlement of Derivatives contracts.

Clearing Member: It implies a member of the clearing Corporation.

It includes all categories of Clearing Members as may be admitted to the Futures & Options Segment of the Clearing Corporation.

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

Exercise process: The period during which an option is exercisable depends on the style of the option.

Interim exercise settlement: Interim exercise settlement takes place only for option contracts on securities.

Mark-to-market: Mark-to-market or fair value accounting refers to accounting for the “fair value” of an asset or liability based on the current market price, or for similar assets and liabilities, or based on another objectively assessed “fair” value.

Professional Clearing Members: They clear and settle trades executed by TMs.

Self-clearing members: In the F&O segment, some members, called self clearing members, clear and settle their trades executed by them only either on their own account or on account of their clients.

Trading Members: It refers to a member of the BSE/NSE who is authorised to place orders in the Capital Market System.

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