Adjustment of Corporate Actions for Stock Option

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....ration. 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 methodo....

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....at present. However, certain adjustments for Corporate Actions for Stock Options would be as follows : 1. The basis for any adjustment for corporate action shall be such that the value of the position of the market participants on cum and ex-date for corporate action shall continue to remain the same as far as possible. This will facilitate in retaining the relative status of positions viz., in-t....

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....d cash benefits. The various stock benefits declared by the issuer of capital are : * Bonus * Rights * Merger/De-merger * Amalgamation * Splits * Consolidations * Hive-off * Warrants, and * Secured Premium Notes (SPNs) among others. * Extraordinary dividends 1. The methodology proposed to be followed for adjustment of various corporate actions to be carried out are as follows:....

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....plier/Position : Y New issue size : Y * (A+B)/B The above methodology may result in fractions due to the corporate action e.g., a bonus ratio of 3 : 7. With a view to minimizing fraction settlements, the following methodology is proposed to be adopted : 1. Compute value of the position before adjustment 2. Compute value of the position taking into account the exact adjustment factor 3. Carry ....