India’s markets regulator restored a method that relies on the final 30 minutes of trading to settle derivatives on expiry days, after the new closing auction raised concerns over sharp price swings.
Bloomberg had previously reported about the proposed change. Trades executed during the closing auction will not be included in calculating the final settlement price of expiring futures and options. The move limits the impact of unusually sharp auction moves on expiring contracts after bouts of volatility since the mechanism’s launch in August raised concerns about using auction prices to settle options contracts worth billions of dollars. The regulator has shortened the transition from continuous trading to the closing auction to one minute from five minutes.
The changes take effect from December 7. Trading in index and stock derivatives will continue until 3:45 pm, except for expiring index contracts, which will stop trading at 3:30 pm. Continuous trading in stocks covered by the closing auction will run until 3:30 pm, aligning their regular-market close with that of other cash securities. The 10-minute auction will follow until 3:40 pm.
The Securities and Exchange Board of India (SEBI) said settlement prices for index and stock derivatives will be based on the volume-weighted average over that period, according to a circular issued late Thursday. “SEBI has reverted to the tried-and-tested volume-weighted pricing mechanism, a move that should help restore trading volumes and bring participants back to the market,” said Tejas Shah, head of equity derivatives at Equirus Securities Pvt.
