SEBI set to pause new derivatives settlement rules after market pushback

Settlement Rule Changes

India's capital markets regulator is planning to pause the use of closing auctions to calculate derivatives settlement prices for at least a year. The Securities and Exchange Board of India launched the closing auction session, known as CAS, in August for stocks that have futures and options contracts linked to them. This method used a brief trading block at day-end to set stock closing values, matching practices seen in global markets like the U.S. and Hong Kong.

Market Pushback and New Plans

The new process caused sharp price swings in derivatives on expiry days, which led the regulator to review the system. SEBI stated over the weekend that it received twenty thousand suggestions to alter the rules after issuing a consultation paper last month. Sources indicate the regulator will instead use the volume-weighted average price from the final thirty minutes of trading to determine derivative pricing.

Upcoming Adjustments

For underlying shares in the less liquid cash market, the closing auction will remain in place to set end-of-day prices, according to sources who spoke on the condition of anonymity. SEBI plans to roll out these modifications by the end of this month, while a spokesperson for the regulator did not reply to requests for comment. Market feedback also supported maintaining the current schedule, with normal trading ending at three-thirty in the afternoon and derivatives trading wrapping up fifteen minutes later.

Context

Financial regulators often test new market mechanisms to bring local practices in line with major global exchanges. When broad industry feedback points to unexpected volatility or operational hurdles, regulators frequently adjust their approach to protect market stability.