SEBI issues circular on Adjustment in derivative contracts for dividend announcements to review the framework

SEBI

On 28-06-2022, Securities and Exchange Board of India (‘SEBI’) issued a circular in order to protect the interest of the investors in securities and to promote development of and to regulate the securities market.

Through circulars dated 18-12-2002 and circular dated 05-07-2018 (all reviewing adjustment of corporate actions for stock option), SEBI laid down:

  1. Reviewed framework for adjustment of derivative contracts posts dividend announcements on the request of the stakeholders made through representations. The suggestions made by the stakeholders were examined by the Secondary Market Advisory Committee (‘SMAC’) of SEBI.

  2. Based on SMAC’s recommendation the adjustment in derivative contracts must be carried out where the dividends declared are at or 2% of the Market Value of the underlying stock.

  3. Revised threshold will be applicable for dividend announcements done on or after 29-06-2022.

  4. Provisions of the SEBI Circular dated 21-06-2001, 18-12-2002 and 05-07-2018 will be modified to the extent described in this circular.

  5. Directions are given to Stock Exchanges and Clearing Corporations to:

    • Implement the circular properly and amend the relevant bye-laws, rules and regulations
    • Bring the provisions of this circular in notice of their members and disseminate the same on their websites
    • Give confirmation to SEBI that the provisions of the circular have been implemented.

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