Archive · 28 Aug 2026
Mutual Funds Propose Fair-Value Futures Pricing To Stabilize Arbitrage NAVs
Mutual funds use arbitrage strategies by buying shares and selling related futures contracts.
These two positions are meant to balance each other.
But the cash market and futures market currently use different closing methods.
This can make a fund’s daily value jump up or down even when its overall position has barely changed.
The industry wants futures to be priced using the final share price plus the normal difference between shares and futures.
This could make fund values more stable and improve pricing for investors.
Regulators and exchanges would need to decide how to calculate the difference.
They would also need to update systems for settlement, margins and other calculations.
The mutual fund industry wants equity futures valued using a fair-value price at market close.
The proposed price would combine the final cash-market closing price with the prevailing cash-futures spread.
Closing Auction Sessions have created timing and pricing differences between cash and futures markets.
These differences can cause arbitrage funds to report sharp NAV gains or losses despite offsetting positions.
The proposal could affect derivatives-market trading hours, clearing, settlement, margining and mark-to-market calculations.
- Who
- The mutual fund industry, arbitrage funds, regulators, exchanges and clearing corporations.
- What
- The industry has proposed fair-value pricing for equity futures at market close to reduce sharp arbitrage-fund NAV swings.
- When
- The articles do not specify a date or implementation timeline.
- Where
- The cash-market and equity-futures markets; the specific exchanges are not identified.
- Why
- A Closing Auction Session creates a mismatch between cash and futures closing prices, which can produce NAV gains or losses that do not reflect the underlying arbitrage position.
Arguments For Fair-Value Pricing
Implementation Concerns
NAV stability
Arguments For Fair-Value Pricing
Linking futures valuation to the final cash-market price and cash-futures spread could reduce sharp, economically misleading NAV swings.
Implementation Concerns
Changing valuation methods would require revisions to existing clearing, settlement, margining and mark-to-market frameworks.
Futures-market closing
Arguments For Fair-Value Pricing
A mathematically linked closing price could potentially reduce the need for futures trading to continue after the cash-market close.
Implementation Concerns
The regulator and exchanges would still need to determine the precise spread calculation and time window before making changes.
- Funds affected
- Arbitrage funds
- Assets managed
- Around ₹3.5 lakh crore
- Current strategy
- Buying shares in the cash market while simultaneously selling futures contracts
- Proposed futures price
- Final cash-market Closing Auction Session price plus a predetermined cash-futures spread
- Possible spread basis
- The relationship between cash-market VWAP and the corresponding futures price over a specified pre-close period
- Potential result
- More stable NAVs and fairer entry and exit pricing for arbitrage-fund investors
- Systems potentially affected
- Clearing, settlement, margining and mark-to-market calculations