The ‘Do Not Exercise’ option allows a trader to inform the broker that the trader does not wish to exercise the right to send or receive deliveries. Brokers raised concerns about trading challenges, particularly when traders didn’t fulfill their settlement obligations at the expiration of derivative contracts. As a result, the NSE suspended it in October 2021 and then brought it back in April 2022 for traders.

Indeed, the ‘Do Not Exercise’ option is helpful in this regard. Options contracts have a predetermined expiration date. If the owner does not exercise the right to buy or sell the underlying security at the strike price within that period, the contract expires worthless and the owner forfeits the right to do so. The physical settlement was only accessible for cash market transactions prior to October 2019. The Securities and Exchange Board of India (SEBI), a market regulator, has nonetheless increased the usage of physical settlement in the derivatives market.

Most options traders have experienced problems with margin calls. When ‘Do Not Exercise’ will be eliminated, traders may face some dangers while trading in the stock market. Options traders were able to automatically square off positions using the Do Not Exercise capability. In other words, if a trader does not accept delivery, it will immediately be squared off, and just the remaining balance is due from the trader.

After the March Future and Options contracts expired, the exchange will no longer provide the service, as it had previously said in a circular from January. The aforementioned feature will nevertheless be available to index choices. The National Stock Exchange (NSE) will discontinue offering investors trading stock options the ‘Do Not Exercise’ option as of March 30. Market analysts, however, contend that eliminating such a clause would also eliminate the auto square-off option and might result in traders experiencing record losses on the day that futures and options contracts expire. If a stock options strike goes into delivery and a trader doesn’t have funds in his Demat account, the broker may impose interest and penalties on the trader in accordance with the firm’s specific penalty rules.