PSX plans new stock options market, seeks public feedback

The Pakistan Stock Exchange (PSX) has proposed a regulatory framework for a Single Stock Options Contracts market, seeking public feedback on amendments to its regulations and schedule of charges as it moves to expand the country’s derivatives market.

Under the proposal, investors would be able to trade call and put options on selected stocks eligible for the exchange’s Deliverable Futures Contracts market. Written comments from market participants and other interested parties can be submitted until November 5, 2026.

The proposed framework sets out contract specifications, settlement procedures, pricing mechanisms and fees for the new market. The amendments would still require regulatory approval before implementation.

How the proposed options market would work

Single stock options are contracts linked to the shares of an individual listed company. A call option gives its buyer the right to buy shares at a predetermined price, while a put option gives the buyer the right to sell shares at that price, subject to the contract terms.

Such instruments can be used to take positions on expected share-price movements or manage exposure to price changes. However, they also involve risks, including the potential loss of the premium paid by an options buyer.

Under the PSX proposal, contracts would follow a European-style structure, meaning they could be exercised only on their expiry date. Unlike cash-settled contracts, the proposed options would be settled through delivery of the underlying shares.

The settlement cycle would be T+1, meaning settlement would take place one business day after the relevant transaction, under the proposed framework.

Contracts to cover 500 shares

Each contract would generally represent 500 shares, although PSX could specify a different quantity. Adjustments would be made proportionally for contracts that do not follow the standard size.

The exchange plans to offer contracts for the current month and the following two calendar months. Contracts would expire on the last Friday of the relevant month or the preceding trading day if the Friday fell on a market holiday.

The proposed framework would maintain multiple strike prices, including options that are in the money, at the money and out of the money. These terms describe how an option’s strike price compares with the underlying share’s market price.

PSX would initially offer monthly maturity contracts following consultation with market participants, while the proposed amendments would give the exchange discretion to introduce contracts with 90-day or other maturities.

Pricing and settlement rules

The proposed framework would use the Black-Scholes model to calculate theoretical option prices. The model considers factors including the underlying share price, strike price, time to expiry, interest rates and volatility.

For daily option settlement prices, PSX proposes using the volume-weighted average price of trades during the final minutes of trading. If trading volumes do not meet the required thresholds, the calculation could use a longer period, including the final hours or the full trading day.

The framework also outlines procedures for automatically exercising eligible in-the-money contracts, subject to the National Clearing Company of Pakistan Limited’s assignment procedures.

Options buyers would pay the premium upfront on a T+0 basis, meaning payment would be due on the transaction day. Under the proposal, buyers would not be required to post a margin against the premium payable.

Proposed trading fees

PSX has also proposed a fee structure for the market.

The exchange would charge a trading fee of PKR 7 per PKR 100,000 of traded value, alongside a regulatory fee of PKR 0.88809 and a Securities and Exchange Commission of Pakistan levy of PKR 0.65 per PKR 100,000.

Brokerage commissions would follow the rates applicable to the Ready and Deliverable Futures Contracts markets, with a minimum charge of 3 paisa per share or 0.15%, whichever is higher.

The proposal would also allow PSX’s board, with SECP approval, to suspend or permanently discontinue the options market.

Public consultation before implementation

PSX has invited comments on the proposed regulatory amendments until November 5, 2026. Feedback can be submitted by email to comments.rad@psx.com.pk or by post to the Chief Regulatory Officer, Regulatory Affairs Division, Pakistan Stock Exchange Building, Karachi.

Following the consultation, PSX plans to publish a response paper addressing relevant comments and its responses. The proposed amendments would then require SECP approval.

The initiative follows earlier consultations involving PSX, the National Clearing Company of Pakistan Limited and the Pakistan Stock Brokers Association on the development of a single stock options market.

The proposed framework is intended to broaden the range of trading and risk-management instruments available in Pakistan’s capital market. Its eventual introduction will depend on the completion of the consultation and regulatory approval process.