CAPITAL markets regulator SEBI on Wednesday introduced the mechanism of net settlement of cash and Futures & Options (F&O) segment upon expiry of stock derivatives.

The move is aimed at providing better alignment of cash and derivatives segment, mitigation of price risk in certain cases and netting efficiencies for market participants, the Securities and Exchange Board of India (SEBI) said in a circular. Under the mechanism, the obligations arising out of cash segment settlement and physical settlement of F&O segments, upon expiry of stock derivatives, would be settled on a net basis as against the current approach of settling such obligations separately. The benefit of netting (merged settlements) would be available to investors who trade and clear through the same TM-CM (trading member-clearing member) combination in cash and F&O segment.

However, investors whose TM clears trades through different CM/Clearing Corporation (CC) will not be able to avail the benefit of netting.

SEBI said that netting of settlement obligations of cash segment and physical settlement of F&O segment would not be available for the institutional investors including Foreign Portfolio Investors as the regulatory framework specifies that all transactions by the institutional investors in the cash market should be backed by delivery.

Further, netting of delivery obligations would be only for the purpose of settlement. Therefore, Securities Transaction Tax (STT) and Stamp Duty would continue to be computed, levied and reported segment-wise. The new guideline would come into force from March 2023 expiry of F&O contract.