The Securities and Exchange Board of India (Sebi) has proposed a revamp of the closing auction session (CAS) framework following concerns that the month-old system was leading to abrupt price swings and market uncertainty.
In a consultation paper issued on Saturday, the market regulator suggested expiry-day settlement prices for index and stock derivatives could be calculated using trades from the last 30 minutes of the continuous trading session (CTS) and 10 minutes of the closing auction session (CAS), under a blended volume-weighted average price (VWAP) approach.
As an alternative, the regulator has proposed retaining the existing VWAP methodology initially, with settlement based only on trades during the final 30 minutes of continuous trading, before potentially shifting to the blended approach after at least a year of experience with CAS.
Mint was the first to report on 7 September that the stock market regulator may look to bring back the old mechanism to settle derivative contracts on expiry days, with a proposal to settle weekly and monthly derivatives using the previous VWAP model, or using a combination of VWAP and CAS prices.
The proposals come barely weeks after CAS was introduced for F&O stocks on 3 August. Under the new framework, the closing price of securities is determined through an auction rather than the VWAP of trades in the final 30 minutes of continuous trading. Derivatives, however, continue to trade around the closing process, particularly on expiry days.