Physical settlement of stock derivatives on the cards The Securities and Exchange Board of India (Sebi) on Thursday sought market feedback on moving to a physical settlement system in stock derivatives.Currently, all derivatives contracts are cashsettled. “Market participants are requested to provide their comments on whether there is a need to have compulsory physical settlement in stock derivatives contracts, and whether physical settlement should be done inaphased manner starting with stock options followed by stock futures,” the capital markets regulator said inadiscussion paper. In the past, Sebi, through various committees, and even stock exchanges, has tried implementation of physical settlement in stock derivatives.However, cash settlement has proved to be more popular. Most exchanges across the world use cash settlement. Some exchanges offer both options, while a few offer physical settlement. Under physical settlement, the trader gets delivery of the underlying security.