India’s markets regulator, SEBI, is set to review and potentially revise the methodology for calculating derivative settlement prices after complaints about price swings during expiry days, aiming to ensure greater market reliability without abandoning the new Closing Auction Session.
India’s markets regulator is preparing to revisit how derivative settlement prices are calculated after the debut of the Closing Auction Session, a move aimed at reducing expiry-day distortions without scrapping the new mechanism altogether. According to reports, the Securities and Exchange Board of India is likely to issue a consultation paper and may place the matter before its board meeting on 24 September.
The review comes after traders and other market participants complained that the auction window, introduced on 3 August, could amplify price swings at the close of trading. In the new system, futures and options-eligible shares stop continuous trading at 3.15pm and then move into a roughly 20-minute auction to determine the official close, while non-F&O shares continue until 3.30pm and derivatives trade until 3.40pm.
Several reports have said SEBI does not plan to abandon the Closing Auction Session itself. Instead, the regulator is expected to look at the methodology used to set expiry-day settlement prices for derivative contracts, with the aim of making them more reliable. SEBI chairman Tuhin Kanta Pandey has already indicated that the framework is staying in place, even as the regulator examines market concerns.
The complaints have focused on sharp moves during expiry sessions, when relatively thin liquidity in the auction can give a small number of orders outsized influence. One recent session saw the indicative Sensex close fall by about 2.5%, while some put option premiums surged several hundred per cent, underscoring the execution risk for traders using systematic options strategies. Any changes now under consideration are therefore likely to be technical rather than structural: a refinement to pricing rules, not a retreat from the auction itself.
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