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The futures and the options contracts on the NSE have different settlement mechanisms.

Settlement of Nifty or individual futures contracts: For future contracts there is daily mark-to-market and final settlement price.

Daily Mark-to-Market Settlement: The positions in the futures contracts for each member is marked-to-market to the daily settlement price (available in the NSE Web site), of the futures contracts at the end of each trade day. The profits/ losses are computed as the difference between the trade price or the previous day's settlement price, as the case may be, and the current day's settlement price.

The clearing members (CM) who have suffered a loss are required to pay the mark-to-market loss amount to NSCCL, which is in turn passed on to the members who have made a profit. This is known as daily mark-to-market settlement.

Final Settlement

On the expiry of the futures contracts, NSCCL marks all positions of a CM to the final settlement price and the resulting profit / loss is settled in cash. The final settlement of the futures contracts is similar to the daily settlement process except for the method of computation of final settlement price. The final settlement profit / loss is computed as the difference between trade price or the previous day's settlement price, as the case may be, and the final settlement price of the relevant futures contract. Final settlement loss/ profit amount is debited/ credited on T+1 day (T= expiry day).

Settlement of index or individual option contracts: Index contracts can be exercised only on expiry whereas individual option contracts can be exercised any time before expiry.

Interim Exercise Settlement

This is applicable only for individual stock option contracts. Interim exercise settlement is effected for valid exercised option positions at in-the-money strike prices, at the close of the trading hours, on the day of exercise. Valid exercised option contracts are assigned to short positions in option contracts with the same series, on a random basis. The interim exercise settlement value is the difference between the strike price and the settlement price of the relevant option contract. Exercise settlement value is debited/ credited to the relevant CMs clearing bank account on T+2 day (T= exercise date).

Final Exercise Settlement Final Exercise settlement is effected for option positions at in-the-money strike prices existing at the close of trading hours, on the expiration day of an option contract.

Long positions at in-the money strike prices are automatically assigned to short positions in option contracts with the same series, on a random basis. For index options contracts, exercise style is European style, while for options contracts on individual securities, exercise style is American style. Final Exercise is Automatic on expiry of the option contracts. Option contracts, which have been exercised, shall be assigned and allocated to Clearing Members at the client level. Final settlement loss/ profit amount for index option contracts is debited/ credited to the relevant CMs clearing bank account on T+1 day (T = expiry day). Final settlement loss/ profit amount for option contracts on Individual Securities is debited/ credited to the relevant CMs clearing bank account on T+2 day (T = expiry day).

(Edited extracts from NSE)

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