SEBI floats options on derivatives settlement price, CAS timings
SEBI has proposed two options each for derivatives settlement pricing and market timings, alongside changes to the Closing Auction Session, inviting public comments until October 3.
The Securities and Exchange Board of India has issued a consultation paper proposing changes to how derivatives contracts are settled, when markets close, and how the Closing Auction Session (CAS) operates, seeking public feedback until October 3.
The proposals follow concerns raised by market participants and observations from the early phase of CAS implementation, including issues around settlement-price computation, the shift from continuous trading to the auction session, indicative prices, and how the cash and derivatives markets interact.
On settlement pricing for index and single-stock derivatives on expiry days, the regulator has put forward two alternatives.
The first is a "Blended VWAP" methodology, under which the settlement price would draw on trades from the final 30 minutes of the Continuous Trading Session (CTS) and the 10-minute CAS window. Each period's contribution would reflect its actual traded value rather than a fixed weight. SEBI said this approach would capture a wider span of real market transactions and could offer a more representative basis for settlement, especially given the experience since CAS began on August 3.
The second option would retain the existing CTS VWAP methodology as an interim measure, basing the settlement price solely on trades in the last 30 minutes of CTS. The blended method could be revisited after at least a year, subject to adequate liquidity, participation and familiarity with CAS.
SEBI has also proposed that the Indicative Index Value (IIV), derived from Indicative Equilibrium Prices (IEPs), not be displayed during CAS, while security-level IEPs would continue to be published. The regulator noted that IEPs are indicative and evolving, and do not reflect actual traded prices. It said the IIV was being misread by some stakeholders, prompting positions to be taken on the indicative value.
On market timings, two alternatives have been floated. Under Option A, CTS for CAS stocks would run until 3:30 pm, CAS would take place from 3:31 pm to 3:40 pm, and derivatives trading would continue until 3:45 pm. Under Option B, CTS would end at 3:15 pm, CAS would be held from 3:15 pm to 3:25 pm, and derivatives trading would go on until 3:30 pm.
Both options seek to cut the transition between CTS and CAS from five minutes to up to one minute, and to shorten the post-CAS derivatives trading window from 10 minutes to five. SEBI said market feedback indicated a shorter window after CAS would be adequate.
The regulator has also invited views on restricting the cancellation of limit orders placed beyond ±1 per cent of the reference price during CAS, while allowing price-improving modifications within the existing ±3 per cent band.
A further proposal would permit unexecuted Iceberg orders remaining at the end of CTS to be converted into normal limit orders, with the full pending quantity disclosed in the CAS order book.
SEBI said the proposals are intended to improve price discovery, give market participants greater clarity, and ensure more orderly interaction between the cash and derivatives segments. Comments can be submitted through SEBI's public-comment mechanism or by email to mrdcas@sebi.gov.in.