The much-awaited net settlement in stock markets between cash and derivatives segment will soon be a reality. On Wednesday, SEBI introduced the mechanism, whereby receivables and payables can be settled on a net basis in both the segments instead of separate transactions in derivatives expiry.
The netting efficiency will help in margin or capital management and mitigation of price risk in certain cases, SEBI said.
The benefit of netting (merged settlements) would be available to investors who trade and clear through the same TM-CM (trading member-clearing member) combination in cash and F&O segment. However, investors whose TM clears trades through different CM/Clearing Corporation (CC) will not be able to avail the benefit of netting.
STT still applicable
SEBI said that netting of settlement obligations of cash segment and physical settlement of F&O segment would not be available for the institutional investors including Foreign Portfolio Investors as the regulatory framework specifies that all transactions by institutional investors in the cash market should be backed by delivery.
Further, netting of delivery obligations would be only for the purpose of settlement. Therefore, Securities Transaction Tax (STT) and Stamp Duty would continue to be computed, levied and reported segment-wise.
The new guideline would come into force from March 2023 expiry of F&O contract.