NISM Series VIII, Chapter 7. Updated Jun 2026, 9-minute read.

Trading, Clearing and Settlement of Derivatives

Chapter 7 covers the operational mechanics of the derivatives market — how trades are executed on NSE, how NSCCL clears and settles them, and the position limits that govern participation.

Key takeaways

NSE's NEAT-F&O system uses an order-driven continuous market with price-time priority
NSCCL acts as central counterparty (CCP) — guarantees all trades, eliminating counterparty risk
Daily MTM settlement uses closing prices; final settlement uses last-30-min volume-weighted average
Index options: European style, cash settled; Stock options: American style, cash settled
Position limits: market-wide (20% of free-float), client level, FII level
Circuit breakers: 2%, 5%, 10% index-wide pause triggers on intraday basis

NSE F&O Trading System

NSE's derivatives segment operates on the NEAT-F&O (National Exchange Automated Trading) platform. Key features:

Order-driven continuous market: orders are matched by price-time priority
Market, limit, stop-loss, and good-till-cancelled (GTC) orders
Two trading sessions: Normal (9:15 AM to 3:30 PM IST)
Expiry: Last Thursday of the contract month (monthly contracts); weekly contracts for Nifty expire every Thursday

Clearing through NSCCL

NSCCL (National Securities Clearing Corporation Ltd) acts as the central counterparty for all NSE derivatives trades:

Becomes the buyer to every seller and seller to every buyer
Eliminates bilateral counterparty risk
Collects margins from both parties before and during the life of the trade
Guarantees settlement even if one party defaults

Settlement Types

Daily MTM Settlement

All open positions settled daily at the Daily Settlement Price (DSP)
DSP = closing futures price on NSE
MTM gains/losses credited/debited to margin accounts by T+1

Final Settlement

Occurs on expiry (last Thursday)
Index futures/options: settled at the Final Settlement Price (FSP) = last 30 minutes' volume-weighted average of the underlying index
Stock futures: settled at closing spot price of the stock on expiry day
All settlements are cash-based (no physical delivery of index)

Position Limits

Level	Limit for Index Derivatives	Limit for Stock Derivatives
Market-wide	No specific limit	20% of free-float market cap (or 30× ADTV)
Client/Proprietary	Higher of 15% of market OI or ₹500 cr	Higher of 1% of free-float shares or ₹500 cr
FII	Higher of 15% of market OI or ₹5,000 cr	Same as client limit per stock

Frequently asked questions

What happens on expiry Thursday if I hold a Nifty futures position?

Your position is cash-settled at the Final Settlement Price (FSP), which equals the volume-weighted average of the Nifty 50 index over the last 30 minutes of trading on expiry day. You receive/pay the difference between FSP and your last MTM price.

What are circuit breakers in F&O?

If the BSE Sensex or NSE Nifty moves 2%, 5%, or 10% from the previous day's close, a market-wide circuit breaker is triggered. Trading halts for 15 minutes (at 2% and 5%) or 1 hour (at 10%). This applies to both equity and derivatives segments.

Written by Arpan Das.

Keep going with Series VIII