The Securities and Exchange Board of India (Sebi) on Monday said that all derivatives will be settled physically to curb volatility and promote borrowing and lending.

In a physical settlement, traders have to take delivery of shares on the settlement day against the derivatives positions. All the stocks will be delivered physically in a phased manner in descending order, said the markets regulator. The first 50 stocks with smaller market capitalisation will move toward physical settlement by April this year, the next 50 in July and the next 50 by October. This comes despite a lacklustre Securities Lending and Borrowing (SLB) programme and a lukewarm response to 46 stocks that were moved by the National Stock Exchange of India Ltd (NSE) in April for physical delivery.

The regulator had in April announced that it will move stocks to physical delivery in a phased manner.

NSE, which accounts for nearly 99% of trades in futures and options (F&O), has 200 stocks in the derivatives segment.

“Most of the traders had preferred to roll over their positions in these stocks rather than take physical delivery,” said a trader who did not wish to be named.

The regulator may also have to keep in mind the possibility of migration of liquidity to Singapore Stock Exchange Ltd (SGX), which is still a cash-settled market.

Sebi initiated the review and issued a consultation paper in September 2017 after a detailed study indicating the ratio of turnover in the cash market as compared to derivatives was very low. “The turnover in equity derivatives is 15.59 times that of cash market,” Sebi observed in the discussion paper.

Sebi also aims to curb speculative trading by using physical settlement. .#casansaar (Source - LiveMint)