Mumbai, September 12 (Daily Kiran) : The Securities and Exchange Board of India (SEBI) has proposed significant changes to the derivatives contracts system and the Closing Auction Session (CAS) framework in a consultation paper released on Saturday. These modifications aim to enhance market efficiency and the accuracy of settlement prices.
In its proposal, SEBI introduced two options for determining the settlement price of index and single-stock derivatives on expiration days. The first option suggests using a “Blended VWAP” (Volume-Weighted Average Price) method. This approach would calculate the settlement price based on trades executed during the last 30 minutes of the Continuous Trading Session (CTS) and the 10-minute CAS period. The contribution from each time segment would be based on actual traded value rather than a fixed weightage.
SEBI noted that this method could encompass a broader range of market transactions, potentially yielding more accurate settlement prices. Alternatively, the second option proposes maintaining the existing CTS VWAP method as a temporary measure, where the settlement price would rely solely on trades from the last 30 minutes of the CTS.
The regulator indicated that a blended methodology could be reconsidered after at least one year, contingent on sufficient liquidity, participation, and familiarity with the CAS.
Additionally, SEBI proposed eliminating the Indicative Index Value (IIV) during the CAS, while continuing to provide the Security-Level Indicative Equilibrium Price (IEP). The IEP represents indicative and variable values, which do not reflect actual trading prices. SEBI expressed concerns that some market participants misinterpreted the IIV, leading to positions based on misleading values.
Under Option A, the CTS for CAS stocks would continue until 3:30 PM, followed by the CAS from 3:31 PM to 3:40 PM, with derivatives trading extending until 3:45 PM. Option B suggests that the CTS would end at 3:15 PM, the CAS would run from 3:15 PM to 3:25 PM, and derivatives trading would conclude at 3:30 PM.
Both options would reduce the transition time between the CTS and CAS from five minutes to one minute. The post-CAS derivatives trading window would also shrink from ten minutes to five minutes. Feedback from the market indicated that a shorter trading window after the CAS would be sufficient.
Leave a Comment