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Sebi plans review of derivatives settlement prices tied to closing auction
The regulator said it could propose changes after monitoring CAS during its first month, following industry complaints about expiry day pricing volatility.
India's securities regulator, Sebi, said it will review how settlement prices for derivative contracts are determined after industry feedback on the impact of the new closing auction session on expiry day pricing.
Sebi said it may propose changes to the settlement price methodology, with a consultation paper expected in about a week. The review comes about a month after the closing auction session was introduced in the equity cash segment on Aug. 3, where the closing price is set by matching the maximum number of buy and sell orders in the last 15 minutes of the trading day.
Under the framework, the auction-based closing price is also used as the basis for determining settlement prices for derivatives on expiry. Sebi cited concerns that the auction sessions have been creating unpredictable price swings and market uncertainty, pointing to Thursday's BSE expiry day move where the index fell about 2,100 points in the first five minutes of the auction before recovering.
Sebi said it monitored CAS closely during its first month and held discussions with exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations, and foreign portfolio investors, and that it also received feedback through social media and other media. The regulator noted that the linkage between CAS-determined closing prices and derivative settlement prices emerged as a significant concern, while it did not specify what changes it is considering. The BSE index ultimately closed 417 points lower at 76,152.86.