SEBI’s Secondary Market Advisory Committee has recommended retaining the current 30-minute VWAP method for expiry settlements for at least another year, while proposing revised closing auction timings and safeguards.
The Securities and Exchange Board of India’s Secondary Market Advisory Committee has recommended keeping the current method for calculating expiry-day settlement prices for index and stock derivatives in place for at least another year, delaying a shift to a blended formula that would have folded in prices from the closing auction session, according to sources familiar with the discussions. The move reflects continuing caution after SEBI introduced the closing auction for stocks in the futures and options segment on August 3, a change intended to make closing prices more transparent but one that quickly drew criticism from traders over sharp price swings and thin participation in the auction.
Under the existing system, expiry settlement is based on the volume-weighted average price of trades executed in the final 30 minutes of continuous trading, from 3:00 pm to 3:30 pm. Market participants had argued that this approach was easier to understand and less vulnerable to distortion than a new blended method that would have mixed continuous-trading prices with auction outcomes. According to the sources, the committee concluded that the market needs more time to assess how the auction behaves in practice before any broader change is made.
The panel has also backed changes to trading hours within the closing auction framework. Normal trading in stocks covered by the auction would run until 3:30 pm, followed by a one-minute transition period, with the closing auction taking place from 3:31 pm to 3:40 pm. Derivatives trading would then continue until 3:45 pm, giving traders an extra five minutes after the auction ends. The committee has further supported the continued display of the indicative equilibrium price during the auction, while resisting calls to publish an index value based on that figure, on the grounds that traders could mistake it for a live market level.
Several details remain under review, especially the treatment of market orders, which have raised concerns about possible manipulation if traders place and then cancel large orders to influence the indicative equilibrium price. The committee has also favoured more flexible handling of iceberg orders, which allow large trades to be displayed in smaller pieces, and would let such orders remain valid until either 3:30 pm or 3:40 pm, with the full quantity visible in the closing auction order book. The recommendations are expected to be folded into SEBI’s forthcoming circular on the closing auction framework, following a consultation that drew more than 20,000 comments from market participants, according to Business Standard.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
