SEBI to Review Derivative Settlement Pricing After CAS Triggers Expiry-Day Concerns

The Securities and Exchange Board of India (SEBI) plans to review the method used to calculate settlement prices for derivative contracts after concerns raised following the introduction of the Closing Auction Session (CAS), as per an Economic Times news report. 

The regulator noted on Thursday that it may propose changes to the methodology. A consultation paper is expected to be issued in about a week. 

Concerns After CAS Rollout 

CAS was introduced in the equity cash segment from August 3. Under the current system, the closing price determined through the auction is also used as the settlement price for derivative contracts on expiry. 

Traders and other market participants reported sharp movements during the 20-minute CAS period. They also pointed to differences between the CAS closing price and prices recorded during regular trading hours. 

These differences were more noticeable on expiry days. Market participants said such movements can affect the value of futures and options contracts close to expiry. 

Difference Between Nifty and Sensex 

Divergences were also recorded between the BSE Sensex and NSE Nifty after the mechanism was introduced. 

On a Sensex expiry day last month, the Nifty ended at 24,396, down 40 points or 0.16%. The Sensex closed at 78,080, up 114 points or 0.15%. The difference between the two indices was 0.31 percentage points. 

Changes in Futures Reference Prices 

Stock exchanges have separately changed the method for determining reference prices for stock and index futures. 

The VWAP of trades carried out between 3:00 pm and 3:15 pm will be used as the reference price. If there are no trades during this period, the last traded price of the stock or index future during the day will be used. 

The CAS window begins at 3:15 pm. 

SEBI Reviews Market Impact 

SEBI said it sought feedback from brokers, foreign portfolio investors, mutual funds, proprietary traders, software vendors, industry associations and other market participants after CAS began. 

Last month, the regulator also acted against two entities over alleged manipulation during the CAS window. Both were penalised and barred from the securities market. 

Derivative Turnover Falls 

Derivative turnover fell to a 14-month low in August. F&O turnover declined 22% during the month, the sharpest fall since December 2024. 

Read More: NCDEX Enters Five-Year Partnership With Cotton Association of India for Cotton Derivatives! 

Conclusion 

SEBI’s proposed consultation paper will examine the methodology for derivative settlement prices. The regulator has not yet disclosed the specific changes it may consider. 

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