SEBI has proposed major changes in derivatives expiry-day settlement pricing. The regulator's focus is on reducing volatility after the closing auction session.
Regulator eyes increased volatility after closing auction session; Public opinion sought on two new options for settlement price.
Mumbai. Indian stock market regulator SEBI proposes major changes in derivatives expiry-day settlement pricing. This step has been taken in view of the increased volatility in the expiry days after the Closing Auction Session i.e. CAS which started in August.
SEBI has suggested two major options. In the first option, a blended price can be created by combining trades from both the last 30 minutes of normal trading and the 10-minute closing auction to determine the expiry settlement price.
In the second option, the settlement price will be decided only from the last 30 minutes of trades of the normal market. That means, Closing Auction Session can be kept separate from derivatives expiry pricing for at least one year.
The regulator has also suggested changes regarding order cancellation and closing auction window. According to the proposal, cancellation of orders more than 1% away from the reference price may attract some restrictions and the post-closing auction window may be reduced to five minutes.
SEBI on these proposals Public comments till October 3 Have asked for. Market experts consider this an attempt to create a better balance between cash-market price discovery and derivatives settlement rather than abolishing CAS.
These changes, if implemented, could help reduce expiry-day volatility and sudden price swings, especially in stocks and indices where derivatives volumes are very high.