In fact, the shift to mandatory physical settlement has happened in phases and October contract is the last phase when all the 161 stocks will be brought under mandatory delivery for stock derivatives (futures and options). The aim is to curb excessive speculation and volatility in share prices. Of the 161 stocks that trade in the F&O segment currently, 50 stocks moved to physical settlement in April and July each. The rest, about 45 stocks, will be moved to physical settlement from October series that begins on Friday. They include some of the frontline names such as Asian Paints, Bajaj Finance, Bharti Airtel, Britannia, HDFC Bank, L&T among others. So plain speculation on all these counters will be effectively curbed!

Let us look at how this system will work. Remember, if you buy stock futures and reverse your position during the contract, then this physical delivery does not really impact you. Let us look at how this system changes. In the earlier situation, any open stock futures position would automatically get squared off on the expiry date (last Thursday of the month) at the closing average price. The mark-to-market (M2M), i.e. the difference of today’s closing price against the previous closing price, would either get debit or credited as the case may be into the client’s ledger. This used to force traders to roll over positions ahead of expiry to avoid lumping of rollovers at the end of the series, which leads to excessive volatility. But when the contract is physically-settled, this will not be the case, and would require actual delivery.