MANU/SDER/0001/2022

Ministry : Securities and Exchange Board of India

Department/Board : Commodity Derivatives Market Regulation Department

Circular No. : SEBI/HO/CDMRD/DNP/CIR/P/2022/01

Date : 03.01.2022

Notification/ Circulars Referred : Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017 MANU/SDER/0004/2017

Citing Reference:
Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017 MANU/SDER/0004/2017Referred

To,

The Managing Directors / Chief Executive Officers
All Recognised Stock Exchanges having Commodity Derivatives segment

Dear Sir / Madam,

Options on commodity futures - product design and risk management

1. SEBI vide Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017, permitted Commodity Derivatives Exchanges to introduce trading in Options on Commodity Futures and stipulated guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures.

2. Based on feedback received from Stock Exchanges and the recommendations of Commodity Derivatives Advisory Committee of SEBI, it has been decided to make changes in the Exercise Mechanism of option contracts on commodity futures. Accordingly, 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:

"5. Exercise Mechanism:

On expiry, following mechanism shall be adopted by Exchanges for exercise of the options contracts:

5.1. 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.

5.2. All Out of the money (OTM) option contracts shall ........