2 hrs ago
CAS Review May Restore Old Derivatives Settlement Model
Sebi introduced a new closing auction system called CAS on August 3.
The system was meant to help markets set fair closing prices.
Some traders said it caused different closing levels on different exchanges.
They also reported unusual movements in options prices, especially on derivatives expiry days.
On one Thursday, the Sensex’s estimated closing value briefly dropped about 2.5 per cent.
Some Sensex put options became much more expensive during that period.
Because of these concerns, Sebi said it would review how derivatives settlement prices are calculated.
It plans to explain possible changes in a discussion paper within a week.
Sebi is reviewing derivatives settlement-price methodology after market feedback on the closing auction session.
The closing auction session, or CAS, began on August 3 to improve price discovery near market close.
Market participants reported differing index closing levels, options volatility and possible price manipulation on expiry days.
On Thursday, the indicative Sensex closing value briefly fell about 2.5 per cent during CAS, according to BSE data.
Some Sensex put-option premiums reportedly surged 400-500 per cent, while Sebi plans to issue a discussion paper within a week.
- Who
- The Securities and Exchange Board of India (Sebi), exchanges and market participants are involved.
- What
- Sebi is reviewing the methodology used to determine derivatives settlement prices after concerns about the closing auction session.
- Where
- The issue concerns India’s equity cash and derivatives markets, including the BSE and other exchanges.
- When
- CAS was introduced on August 3; Sebi announced the review last Thursday, after a sharp movement on Thursday.
- Why
- Market participants reported divergent closing levels, volatile options prices and possible manipulation concerns, particularly on expiry days.
Arguments for CAS
Concerns about CAS
Market closing prices
Arguments for CAS
Sebi introduced CAS to improve the price-discovery process around the market close.
Concerns about CAS
Market participants reported differences in index closing levels between exchanges after CAS was introduced.
Expiry-day trading
Arguments for CAS
The new framework was intended to provide a structured way to determine closing prices for eligible securities.
Concerns about CAS
Participants raised concerns about sharp price movements, options volatility and possible manipulation, particularly on derivatives expiry days.
Key facts
- Regulator
- Sebi
- System reviewed
- Closing auction session (CAS)
- CAS introduction
- August 3
- Review subject
- Derivatives contract settlement-price methodology
- Sensex movement
- Indicative closing value briefly fell around 2.5 per cent on Thursday
- Options impact
- Some Sensex put-option premiums reportedly rose 400-500 per cent
- Next step
- Sebi said a discussion paper would be issued within a week
Sources
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