SEBI to likely stop using closing auction session for derivatives settlement prices
GS3Economy · S&T · Environment · Security· Capital markets & SEBI· Prelims·
Why in news
SEBI is likely to stop using the closing auction session (CAS) to calculate derivatives settlement prices to prevent sharp price swings on expiry days.
Background
SEBI received 20,000 suggestions regarding the August mechanism and September review plans. The regulator plans to switch to using the volume-weighted average price (VWAP) of the last 30 minutes of trading for derivatives settlement.
Facts for Prelims
- BodySEBI: Securities and Exchange Board of India
- FactVWAP: Volume-weighted average price of the last 30 minutes of trading will be used for derivatives settlement
- FactCAS: Closing Auction Session is used for stocks with linked futures and options contracts
- FactLess liquid cash markets: Closing auction will still be used to determine end-of-day prices
For Mains
Q. Discuss the implications of adopting volume-weighted average prices over closing auctions for derivatives settlement in ensuring market stability and investor protection.
Dimensions to cover in your answer
- Volatility mitigation: Reducing sharp price swings in derivatives on expiry days caused by single-point auction pricing
- Market alignment: Harmonizing Indian settlement mechanisms with US and European market standards
- Liquidity management: Differentiating pricing mechanisms between high-liquidity and less-liquid cash markets
Keywords: market volatility · derivatives settlement · volume-weighted average price · regulatory oversight · price discovery
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This note is generated automatically from SatyaDheesh's news feed and mapped to the UPSC CSE syllabus. Check facts against the original report or PIB before using them in an answer.