SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, B Wing, First Floor,
224, Nariman Point, Mumbai 400 021
SMDRP/DC/CIR- 8/01
June 21, 2001
To,
The Chief Executive Officer/ Managing Director of Derivative Segment of NSE & BSE
and their Clearing House / Corporation.
Dear Sir,
Sub: Adjustment of Corporate Actions for Stock Option.
The ‘Technical Group’ headed by Prof. J.R Varma, set up to prescribe risk containment measures for new derivative products, has recommended the risk containment measure for Exchange traded Stock Option Contracts. The Technical Group had set up a sub group comprising officials of BSE & NSE to determine a common methodology for adjusting corporate actions on Stock Options. Based on the recommendation of the sub-group, the Technical Group decided that since options on common stock would be trading on both NSE & BSE the corporate adjustment for the Option on the same underlying should be uniform across markets. While a uniform adjustment methodology could be adopted for certain corporate action, it would be difficult to specify any uniform policy for all corporate actions at this stage. For this purpose, it has been decided to constitute a group comprising NSE, BSE and other knowledgeable persons, which would decide a uniform course of action for adjusting stock option contracts on corporate actions, taking into account best practices followed internationally, where a uniform criterion cannot be laid down at persent. However, certain adjustments for Corporate Actions for Stock Options would be as follows:
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