The Securities and Exchange Board of India (Sebi) intends to address concerns over the settlement price of derivatives on expiry days and other issues related to the rollout of the Closing Auction Session (CAS). The markets regulator will issue amended rules after receiving industry feedback, Sebi chairman Tuhin Kanta Pandey said.
To address market participants' concerns, Sebi earlier this month floated a consultation paper seeking public comments on proposed changes to the methodology for determining the expiry-day settlement prices of index and single-stock derivatives.
The proposals include delinking derivatives settlement prices from the cash market's closing price, discontinuing live indicative index values during the CAS and making orders placed beyond the 1% band more binding.
“Having successfully established the closing auction session (CAS) as an important market structure reform, we intend to address the concerns in respect of the settlement price of derivatives on expiry days and other related issues. A consultation paper has already been issued seeking comments,” Pandey was quoted as saying by news agencies on the sidelines of an industry meet organised by Wall Street major JP Morgan in New Delhi on Tuesday.
Sebi has proposed two options for determining the settlement price. Under the first, called blended volume-weighted average price (VWAP), the settlement price will be based on transactions executed during the last 30 minutes of the continuous trading session (CTS) and the 10-minute CAS. The contribution of each period will be based on its actual traded value, with no fixed weight assigned to either.
Under the second option, Sebi has proposed continuing with the existing CTS VWAP methodology, under which only trades executed during the last 30 minutes of the CTS would be considered.