Page 184 - DCOM510_FINANCIAL_DERIVATIVES

Unit 11: Clearing and Settlement

On balance and on the basis of the evidence available to it, the OFT believes that there is Notes
a realistic prospect that the anticipated merger would substantially lessen competition in
the supply of on-exchange trading services for equities in the UK.
Decision
Consequently, the OFT believes that it is or may be the case that the merger may be
expected to result in a substantial lessening of competition within a market or markets in
the United Kingdom. For the reasons given, the undertakings proposed cannot be accepted
in lieu of reference. The merger is therefore referred to the Competition Commission
under section 33(1) of the Act.
Questions:

1. Write down the case facts and analyse the situation.
2. What is the OFT’s decision regarding transaction between Euronext and London
Stock Exchange Plc (LSE).

Source: http://www.oft.gov.uk/OFTwork/mergers/decisions/2005/euronext#.UO0HU-SGw1s

11.4 Summary

National Securities Clearing Corporation Limited (NSCCL) undertakes clearing and
settlement of all trades executed on the futures and options (F&O) segment of the NSE.
Clearing and settlement activities in the F&O segment are undertaken by NSCCL with the
help of the Clearing Members and Clearing Banks.
In the F&O segment, some members, called self clearing members, clear and settle their
trades executed by them only either on their own account or on account of their clients.
Funds settlement takes place through clearing banks.
The clearing mechanism essentially involves working out open positions and obligations
of clearing (self-clearing/trading-cum-clearing/professional clearing) members.
All futures and options contracts are cash settled, i.e. through exchange of cash. The
underlying for index futures/options of the Nifty index cannot be delivered.

Options contracts have three types of settlements, daily premium settlement, exercise
settlement, interim exercise settlement in the case of option contracts on securities and
final settlement.
In case of index option contracts, all open long positions at in-the-money strike prices are
automatically exercised on the expiration day and assigned to short positions in option
contracts with the same series on a random basis.
All futures and options contracts are cash settled, i.e. through exchange of cash.

The underlying for index futures/options of the Nifty index cannot be delivered. These
contracts, therefore, have to be settled in cash.
Futures and options on individual securities can be delivered as in the spot market.
However, it has been currently mandated that stock options and futures would also be
cash settled.

The settlement amount for a CM is netted across all their TMs/clients, with respect to their
obligations on MTM, premium and exercise settlement.

LOVELY PROFESSIONAL UNIVERSITY 179