1 day ago
SEBI Weighs Expiry-Day Settlement Prices as Expert Favors VWAP
SEBI is deciding how to calculate prices used to settle derivatives on expiry days.
One option uses trades from the last 30 minutes of regular continuous trading.
It would not use trades from the closing auction session during an interim period.
Tradejini executive Trivesh D. prefers this method because it is easier to understand.
He says combining regular trading and the auction could make the calculation more complicated.
A closing auction was introduced in August to improve the way final stock prices are found.
Some market participants have reported sudden price swings, order imbalances, and liquidity problems.
SEBI Chairman Tuhin Kanta Pandey said the closing auction will continue.
SEBI also says liquidity can improve as markets become familiar with the system.
SEBI is considering two methods for calculating expiry-day settlement prices for index and single-stock derivatives.
One proposal would use only trades during the final 30 minutes of continuous trading.
Trades during the closing auction session would be excluded under that interim approach.
Tradejini COO Trivesh D. supports the 30-minute VWAP method as simpler and more established.
SEBI says the approach could give markets time to adapt and build liquidity around the closing auction.
- Who
- The Securities and Exchange Board of India, SEBI Chairman Tuhin Kanta Pandey, and Tradejini COO Trivesh D.
- What
- They are discussing how to calculate expiry-day settlement prices for index and single-stock derivatives.
- Where
- The article concerns securities markets overseen by SEBI; no specific location is stated.
- When
- The closing auction was introduced in August; the proposals are being discussed currently.
- Why
- The proposals aim to address reported price swings, order imbalances, and liquidity concerns while markets adjust to the closing auction.
SEBI’s Transition Rationale
Expert’s Simplicity Preference
Settlement-price methodology
SEBI’s Transition Rationale
SEBI is considering an interim method using only the final 30 minutes of continuous trading, giving participants time to adjust to the closing auction and allowing liquidity to develop.
Expert’s Simplicity Preference
Trivesh D. supports the 30-minute VWAP approach because he considers it simpler and more established than a blended calculation.
Use of closing-auction activity
SEBI’s Transition Rationale
SEBI says the closing auction will remain in place and has pointed to liquidity building over time as participants become familiar with it.
Expert’s Simplicity Preference
Trivesh argues that combining continuous-trading and closing-auction activity could make settlement more complex and require participants to assess the impact of two trading mechanisms.
Key facts
- Proposed interim method
- Use trades from the final 30 minutes of continuous trading to calculate settlement prices.
- Inclusion of auction trades
- Trades executed during the closing auction session would not be included under the second option during the interim period.
- Products affected
- Index and single-stock derivatives.
- Expert view
- Tradejini COO Trivesh D. favors the 30-minute VWAP method.
- Closing auction launch
- The closing price auction was rolled out in August.
- Reported concerns
- Market participants have flagged sudden swings, last-minute order imbalances, and liquidity issues.
- SEBI position
- Chairman Tuhin Kanta Pandey said the closing auction session is here to stay.
Quotes
Tuhin Kanta Pandey
Chairman of the Securities and Exchange Board of India
“A blended VWAP based on both continuous trading and the CAS could add another layer of complexity to the settlement process. It would also make the final settlement price dependent on two different trading mechanisms and would require market participants to assess the relative impact of activity across both periods.”
businesstoday.in
“CAS is here to stay.”
businesstoday.in
Sources
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