SEBI to roll back closing auction rule for derivatives after price swings

India's markets regulator is set to partly reverse a new system used to decide closing prices for key stocks and linked derivatives. The Securities and Exchange Board of India introduced the closing auction session last month for stocks that have futures and options contracts tied to them. This new short auction at the end of the trading day caused sharp price swings in derivatives on expiry days.

Planned Changes

SEBI is likely to stop using the closing auction to calculate derivatives settlement prices for at least a year. Instead, the market will use the volume-weighted average price of the last 30 minutes of trading to set derivative pricing. For underlying stocks in the less liquid cash market, the closing auction will still stay in place. SEBI expects to put these changes in effect by the end of this month. A SEBI spokesperson did not respond to requests for comment.

Context

Regulators often update market rules based on trader feedback and real-world trading data to keep trading smooth. Such adjustments help protect retail and institutional investors from sudden, sharp price shocks during derivative expiry periods.