India’s markets regulator Sebi is planning to revise the derivative contract settlement methodology following recent sharp swings and price mismatches observed during the initial rollout of the closing auction system, aiming to enhance price transparency and stability.
India’s markets regulator is preparing to alter the way derivative contracts are settled after the first month of the new Closing Auction Session exposed sharp swings and pricing mismatches around the market close. According to reports in Business Standard, Mint and The Economic Times, the Securities and Exchange Board of India is expected to issue a consultation paper proposing changes to the expiry-day settlement methodology, rather than abandoning the auction system altogether.
The review follows complaints from traders and market participants that the 20-minute auction window has at times produced abrupt price spikes and differences between venues. Business Standard reported that the concern centres on how the closing auction feeds into the final settlement value for expiring derivatives, making the system more sensitive to activity in a narrow time band. Sebi has said the auction framework was introduced after extensive consultation and that it has been speaking with exchanges, brokers, traders, software vendors, mutual funds, industry groups and foreign portfolio investors since rollout.
The regulator has also been watching the market impact closely. SiliconIndia reported that Sebi penalised Copthall, a JPMorgan entity registered as a foreign portfolio investor, and domestic broker Mansi Broking over alleged manipulation of Sensex levels during the closing auction on August 13, a weekly expiry day. The same report said further volatility appeared on the monthly expiry on August 27 and again on Thursday, reinforcing concerns about how the new mechanism interacts with derivatives settlement.
Sebi chairman Tuhin Kanta Pandey has previously said the regulator was not seeking to scrap the closing auction, but would refine the framework if trading data showed problems. That position now appears to be guiding the next step, with the planned consultation paper expected to open the door to changes that preserve more transparent price discovery while reducing the risk of distorted expiry-day settlement prices. The original closing auction was rolled out in the cash equity segment on August 3, with the aim of replacing the earlier volume-weighted average price method and aligning Indian markets more closely with global practice, according to Business Standard and Moneycontrol.
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