India’s markets regulator, Sebi, is contemplating suspending its recent overhaul of expiry-day derivatives pricing, signalling a strategic shift aimed at stabilising turbulent futures and options trading with a move towards volume-weighted average price calculations.
India’s markets regulator is preparing to soften a recent overhaul to the way expiry-day derivatives are priced, after the change helped trigger sharp swings in futures and options trading, according to Reuters. People familiar with the matter told the news agency that the Securities and Exchange Board of India is likely to suspend the use of the Closing Auction Session, or CAS, for calculating derivatives settlement prices for at least a year, and instead lean on the volume-weighted average price, or VWAP, of the final 30 minutes of trading.
The shift would amount to a partial retreat from a mechanism Sebi introduced only last month for stocks with futures and options contracts. Under CAS, the closing price of a share is set through a brief auction at the end of the trading day. That price was then feeding into derivatives settlement, a link that market participants say amplified price movements around expiry and contributed to volatility.
Reuters reported that Sebi has now received roughly 20,000 responses to its consultation paper on the issue, underscoring how closely traders and brokers have been watching the changes. The regulator is expected to move quickly, with the revised approach likely to be in place by the end of October, according to the report.
The proposed adjustment would leave the closing auction in place for less-liquid shares in the cash market, but would remove it from the formula used to settle derivatives contracts. Instead, the final half-hour VWAP would serve as the benchmark for expiry-day pricing. That would broaden the reference window and reduce the impact of any sudden move in the closing auction itself.
Livemint reported that Sebi first set out the consultation on 12 September, after the introduction of CAS on 3 August led to unexpected price movements. Business Standard said the draft also covered other operational changes to the closing auction, including market timings and order-handling rules, while Moneycontrol reported that market experts have broadly welcomed the planned rethink as a way to curb volatility and manipulation. Economic Times said analysts expect Sebi to preserve the auction mechanism in equities while delinking it from derivatives settlement, rather than scrapping it altogether.
The likely change would move India closer to the way derivatives are settled in the US and Europe, where pricing is often based on trading over a defined period rather than a single closing print. Sebi has not yet formally announced the revision, and Reuters said the regulator did not immediately respond to a request for comment.
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