India’s markets regulator is preparing to partially reverse a new system for setting derivatives settlement prices after the changes triggered sharp price swings on expiry days.
The Securities and Exchange Board of India (SEBI) introduced a Closing Auction Session (CAS) in August for stocks linked to futures and options contracts. The mechanism uses a short auction at the end of the trading day to determine closing prices, but its impact on derivatives has prompted concerns over increased volatility.
Under the planned adjustment, SEBI is expected to stop using the closing auction to calculate derivatives settlement prices for at least one year. Instead, pricing would be based on the volume-weighted average price (VWAP) during the final 30 minutes of trading.
The closing auction would remain in place for less-liquid stocks in the cash market. SEBI is expected to introduce the changes by the end of October.
The regulator received about 20,000 suggestions following its consultation on the rules, highlighting the level of concern among market participants. SEBI is also expected to retain the existing trading schedule, with regular stock trading ending at 3:30 p.m. and derivatives trading at 3:45 p.m.
The adjustment reflects an effort to reduce expiry-day volatility while preserving the closing-auction system where it is considered more suitable.
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