SEBI to issue consultation paper on derivatives settlement price methodology on Saturday

The Securities and Exchange Board of India (SEBI) will issue a consultation paper on Saturday, September 12, to refine the settlement price methodology for derivative contracts. The move comes after sharp swings in the headline indices on expiry days following the rollout of the Closing Auction Session (CAS) in August. SEBI is expected to propose changes to the existing methodology to address concerns over how settlement prices are determined under the new system. The regulator had earlier said it was closely monitoring the functioning of CAS during its first month and had held discussions with a wide range of market participants. SEBI Chairman Tuhin Kanta Pandey has stated that the regulator will retain the CAS and is reworking the methodology for determining the closing price under CAS for derivatives on expiry day. The new framework is aimed at making the price discovery process more transparent and robust. The framework applies only to cash-market stocks with derivative contracts, while the existing volume-weighted average price (VWAP)-based methodology will continue for other stocks. The auction-based mechanism brings India closer to global market practices, where closing prices are discovered through an auction that aggregates buy and sell interest into a single pool of liquidity. SEBI has said the framework is expected to improve execution efficiency for large orders, support fair settlement of derivatives and indices, and enable passive funds to transact at closing prices with lower tracking error.