SEBI proposes to tweak CAS after industry feedback

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Securities and Exchange Board of India (SEBI) headquarters in Mumbai, India | Photo Credit: Reuters

The Securities and Exchange Board of India (SEBI) has proposed to review expiry-day settlement prices, market timings, order handling and information dissemination under the newly introduced Closing Auction Session (CAS), following industry feedback on initial operational snags.

In a consultation paper released on September 12, SEBI said the existing methodology for determining expiry-day settlement prices for index and stock derivatives needs to be reviewed amid heightened activity in expiring index options and derivatives trading based on the Indicative Equilibrium Price (IEP) during the CAS.

“In view of the hyperactivity in expiring index options contracts along with IEP based derivatives trading during CAS, it is proposed to review the existing methodology for determining the settlement price of both index and stock derivatives contracts on the expiry day,” market regulator said in its consultation paper released on September 12.

The regulator has proposed two alternatives for determining expiry-day settlement prices. The first involves using a blended volume-weighted average price (VWAP), while the second would temporarily revert to the pre-CAS settlement-price mechanism for expiry days before transitioning to the blended VWAP methodology.

SEBI has proposed discontinuing the display of indicative index value, while continuing to provide the IEP for individual securities.

According to the regulator, displaying the indicative index value could lead to its misinterpretation by market participants and potentially influence trading and position-taking during the auction session.

The proposed changes also include adjustments to closing market timings for stocks and the futures and options (F&O) segment, along with other modifications to the functioning of the CAS.

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