Karachi June 24 2021: PSX has proposed amendments to PSX Regulations for the introduction of regulatory framework governing Single Stock Options Contracts (SSOC).
Globally, underlying assets for which option contracts are offered include single stocks, commodities and renowned market indices. The options have become an indispensable tool for the securities industry globally and are used extensively by the mutual funds, brokerage firms, speculators, hedgers and various other financial institutions.
A L S O || R E A D
PSX To Launch 90 Day Maturity Deliverable Future Contracts From Next Month
Pakistan Stock Exchange proposed amendments In relation to introduction of regulatory framework governing Single Stock Options Contracts (SSOC) market in Pakistan Stock Exchange Limited (PSX) regulations through induction of a new Chapter 15A of PSX Regulations
Single Stock Options Contracts will be introduced based on European style put and call options. European style options can only be exercised at the expiration date of the contract.
SSOC will be settled physically.
Contract Terms:
Following would be the standard terms of contract:
| Parameters | Description |
| Contract maturity | 90 Days |
| Opening of contract | First trading day following the last Friday of calendar month. |
| Expiry of contract | Last Friday of the expiry month . |
| Tick size | Rs. 0.01 (Premium per underlying share) |
| Option style | European |
| Contract multiplier | 500 shares or any other quantity as may be determined by the Exchange from time to time. |
| Price limit | As per Chapter 19 of PSX Regulations |
| Settlement | Physical settlement |
| Delivery date | T+2 |
Exercise Price Intervals:
Following will be the price interval slabs:
| No. | Underlying Security Price From (PKR) | Underlying Security Price To (PKR) | Strike Price Interval |
| 1 | 0.01 | 0.99 | 0.10 |
| 2 | 1.00 | 1.99 | 0.20 |
| 3 | 2.00 | 2.99 | 0.30 |
| 4 | 3.00 | 4.99 | 0.50 |
| 5 | 5.00 | 9.99 | 1.00 |
| 6 | 10.00 | 19.99 | 2.00 |
| 7 | 20.00 | 49.99 | 5.00 |
| 8 | 50.00 | 99.99 | 10.00 |
| 9 | 100.00 | 149.99 | 15.00 |
| 10 | 150.00 | 199.99 | 20.00 |
| 11 | 200.00 | 249.99 | 25.00 |
| 12 | 250.00 | 299.99 | 30.00 |
| 13 | 300.00 | 399.99 | 40.00 |
| 14 | 400.00 | 499.99 | 50.00 |
| 15 | 500.00 | 599.99 | 60.00 |
| 16 | 600.00 | 699.99 | 70.00 |
| 17 | 700.00 | 799.99 | 80.00 |
| 18 | 800.00 | 899.99 | 90.00 |
| 19 | 900.00 | 999.99 | 100.00 |
| 20 | 1,000.00 | Above | 200.00 |
Since these slabs are operational in nature, PSX will be notifying the same on its website and the same will not from part of PSX Regulations.
A L S O || R E A D
PSX Allows Defaulter Company To Issues Right shares For Paying Sponsor Loan
PSX will open 3 ITM, 3 OTM and 1ATM contracts at each contract opening/ listing day. This means that at the time of contract opening, there will be seven new contracts for call and put options each, i.e. total 14, on same underlying security.
Further, exchange shall also ensure 3 ITM, 3 OTM and 1 ATM contracts that shall be available in the market at opening of each trading day. This means that on each trading day, if the required minimum number of ITM, OTM and ATM are not available, then exchange shall open the remaining single stock options with desired moneyness on such underlying in the same expiring month with new exercise prices.
In order to provide consistency in derivative market and for the benefit of hedging across different markets, PSX is proposing to keep the same eligibility criteria for SSOC market as for futures market i.e. “Futures Eligibility Criteria for selection of securities eligible for trading in DFC and CSF markets”.
A L S O || R E A D
There will be restrictions on uncovered short position in underlying security applicable due to physical settlement. For short call options, the position will technically be similar to short futures position in Deliverable Futures Contract Market and it is proposed to adopt the same limits and disclosure requirement i.e. “up to 0.5 percent of the Free-Float of a scrip or PKR50 million, whichever is higher on UIN basis subject to maximum of 3.0 percent of the Free-Float of a scrip by a broker”.
Options contracts will be adjusted if the underlying stock undergoes a reorganization that directly affects the original terms of its options. This can include stock splits, special dividends (one time), and bonus shares. A two-for-one stock split, for instance, will result in twice the number of shares but at half the price. The holder of an option contract as a result of a two-for-one stock split will thus be granted twice as many option contracts but at half the original
No such adjustment would be required at time of normal cash dividend as premium prices will have to be adjusted with respect to change in underlying price. Corporate announcements will only affect the existing contracts and not the new contracts. New contracts will open on ex-basis.
