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India’s new stock auction system faces first monthly expiry test
Tuesday’s monthly derivatives expiry will include physically settled single-stock options, where auction-driven moves can force investors to deliver shares or funds.
India’s first monthly derivatives expiry under its new auction based stock pricing system is set to take place Tuesday, giving traders their first test of a mechanism meant to align the country with major global markets.
According to LiveMint Markets, the system has already run through regular sessions and a weekly expiry since its launch on Aug. 3, but Tuesday’s monthly expiry will broaden coverage to include physically settled single stock options tied to the auction generated closing prices. A quantitative analyst at Equirus Securities said a monthly expiry makes the closing price more consequential because it brings stock futures and options into the equation.
LiveMint Markets reports that the system has had a difficult start, with some proprietary trading firms and high frequency traders staying away, which has contributed to thinner auction volumes. The late session window for trading both stocks and derivatives at the same time has also narrowed, reducing some arbitrage opportunities.
The article also highlights regulatory scrutiny and added risk for single stock options, noting that the Securities and Exchange Board of India barred two firms, including a unit of JPMorgan Chase & Co., last week over alleged auction price manipulation. A derivatives strategist at Kai Securities said a sharp stock move during the auction could flip an option from expiring worthless to in the money, and because the contracts are physically settled investors could face sudden delivery obligations.