Options on Commodity Futures - Product Design and Risk Management Framework – Modification in exercise mechanism.
Summary
This circular modifies the exercise mechanism for options on commodity futures by mandating automatic exercise for in-the-money contracts and expiration for out-of-the-money contracts. It deletes the previous paragraph 5 of Annexure 1 to the June 2017 circular and replaces it with new provisions regarding fair assignment of exercised contracts. The changes become effective for new series launched on or after February 1, 2022, requiring exchanges to update their bye-laws and report implementation status.
Text
the existing para 5 of Annexure 1 to the Circular dated June 13, 2017 stand deleted. The following new para 5 shall be incorporated in place of the deleted para
All In the money (ITM) option contracts shall be exercised automatically, unless ‘contrary instruction’ has been given by long position holders of such contracts for not doing so
All Out of the money (OTM) option contracts shall expire worthless
All exercised contracts within an option series shall be assigned to short positions in that series in a fair and non-preferential manner
The Circular shall be effective from the date of new series of commodity derivatives launched on or after February 1, 2022
take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same
bring the provisions of this circular to the notice of the members of the Exchange and also to disseminate the same on their website
communicate to SEBI, the status of the implementation of the provisions of this circular
Source: SecMarx — Options on Commodity Futures - Product Design and Risk Management Framework – Modification in exercise mechanism.. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.