SEBI Revises Threshold for Adjustment in Derivative Contracts Post Dividend
Moneylife Digital Team 29 June 2022
Securities and Exchange Board of India (SEBI) has issued new adjustment rules for dividends in futures and options (F&O) scrips.
"It has been decided that the adjustment in derivative contracts shall be carried out in cases where dividends declared are at or above 2% of the market value of underlying stock," SEBI says in a circular.
The threshold has been revised to 2% and above from 5% and above. The new framework will be applicable from Wednesday.
Currently, dividends below 5% of the underlying stock's market value are deemed ordinary dividends, and no adjustment in the strike price is made for such dividends.
The strike price would be adjusted for extra-ordinary dividends, which will be at and above 2% of the market value of the underlying security.
If any company declares an extra-ordinary dividend, the total dividend amount (special and /or ordinary) would be reduced from all the strike prices of the options contracts on that stock.
The decision was taken after several stakeholders had requested to review the framework and various suggestions were examined by the Secondary Market Advisory Committee (SMAC) of SEBI.
The strike price, in market parlance, is the price at which a derivative contract can be exercised. It is mainly used to describe stock and index options.
For call options, the strike price is where the option buyer can purchase the security up till the expiration date. For put options, the strike price is the price at which the option buyer can sell shares.
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