NSE moves to reintroduce 'Do not Exercise' facility

Mumbai: The National Stock Exchange (NSE) said on Monday said it is reintroducing the 'Do not Exercise' facility in stock options from April 28. The move is aimed at preventing mishaps during expiry of equity derivatives contracts in situations where traders are unable to meet their settlement obligations connected to physical delivery. This system has been brought back after being discontinued in October.

In the past three derivative expiry days, several traders who held stock options till expiry ran into trouble because of their inability to deliver shares to settle the trades. This is because they did not have the shares in their demat accounts or lacked enough money to honour the commitment.

Futures and options trades in India are settled with shares if held till expiration. Most traders in India punt through futures and options not with the intention of taking or giving shares on delivery. However, brokers said recently there have been situations where traders were unable to exit the options contracts before they expired on the last Thursday of the month. The value of shares to meet the physical settlement has been multiple times the size of their options trade or even the net worth.


The 'Do not Exercise' or DNE facility is expected to prevent such risks around physical settlement. This system will allow brokers to stop exercising option contracts on behalf of clients.