Markets regulator SEBI on Saturday proposed changes to the methodology for calculating expiry-day settlement prices of index and stock derivatives, following a review of the newly introduced closing auction session (CAS) framework.
In a consultation paper, SEBI proposed two options for determining the settlement prices, a blended Volume Weighted Average Price – VWAP based on trades executed during the last 30 minutes of the continuous trading session – CTS, and the 10-minute CAS, or continuation of the existing CTS VWAP methodology. The proposals follow feedback received from market participants on the use of the CAS-determined closing price for settling derivative contracts on expiry. Determination of derivative settlement prices based on the closing price arrived at through CAS was among the significant areas of feedback received by SEBI.
SEBI introduced the CAS framework in the equity cash segment from August 3 to determine the closing price of securities. Under the current framework, the closing price determined through CAS also serves as the basis for determining settlement prices of derivative contracts on expiry. The use of the CAS-determined closing price for expiry-day settlement of derivatives has been one of the key concerns raised by market participants, prompting Sebi to review the existing methodology.
On 3rd September, SEBI had said it may propose changes to the methodology following the feedback and indicated that a consultation paper on the proposed framework was likely to be released in about a week. The proposed changes are aimed at addressing concerns around the use of the CAS-determined closing price as the basis for settling derivative contracts on expiry. The Securities and Exchange Board of India – SEBI has sought comments from stakeholders on the proposals till 3rd October.
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