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Informist, Saturday, Sept. 12, 2026

 

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--SEBI releases consultation paper to review closing auction, F&O
--SEBI proposes two options for equity F&O settlement price methodology
--SEBI proposes option to settle F&O expiry based on VWAP in last 30 mins
--SEBI proposes option A to extend equity F&O trading timing till 1545 IST
--SEBI proposes option A to change closing auction time to 1531 IST-1540 IST
--SEBI proposes option B to end equity F&O trading at 1530 IST
--SEBI proposes option B to change closing auction time to 1515 IST-1525 IST
--SEBI to collect comments on F&O settlement consultation paper by Oct 3
--SEBI mulls not showing index indicative price during closing auction

 

MUMBAI – The Securities and Exchange Board of India Saturday released a consultation paper to change the methodology for determining the settlement price of index and stock derivatives contracts during expiry. It proposed two options: to calculate the settlement price based on blended volume weighted average price using both the continuous trading session and the closing auction; second, to calculate the settlement price using only the continuous trading session.

 

SEBI has also proposed to do away with the requirement of showing the indicative price for the index during the closing auction. However, the indicative price for stocks will continue to be shown. SEBI will collect comments on the latest consultation paper by Oct. 3. The latest proposal comes amid strong criticism of the closing auction session, which has led to a spike in derivatives prices during expiry and volatility in the cash market since being implemented from Aug. 3.

 

The market regulator also proposed changes to market timings of the cash market's continuous trading and closing auction sessions and the derivatives segment. It proposed two options in this regard. Under the first option, SEBI has proposed that the continuous trading session end time in the cash market be shifted to 1530 IST from 1515 IST. This session ended at 1530 IST prior to the closing auction session advent and marked the closing time of the cash market. Under the closing auction regime, the continuous trading session for stocks in the futures and options permitted list ends at 1515 IST, while for the rest of the stocks it continues to end at 1530 IST as before.

 

In the proposed first option, the closing auction session timing will be changed to 1531 IST-1540 IST from 1520 IST-1530 IST. There will be a transition time of one minute from 1530 IST to 1540 IST as against five minutes from 1515 IST to 1520 IST currently. Under this option, the equity futures and options segment's end time will be 1545 IST, as against 1540 IST currently. 

 

In the proposed second option on market timings, the cash market's continuous trading session end time for the stocks in futures and options permitted list will remain unchanged at 1515 IST, but the closing auction session timing will be changed to 1515 IST-1525 IST that will include a transition time of one minute from 1515 IST to 1516 IST. Under this option, the equity futures and options segment's end time will be 1530 IST, as against 1540 IST currently.

 

In the proposals for changes to settlement methodology for index and single stock futures and options, SEBI said if the second option of fixing the settlement price on expiry day as the volume-weighted average price of the last 30 minutes of the continuous trading session of the underlying is chosen, then it would only be for an interim period of minimum one year. After end of the interim period, the methodology will switch to the first option proposed in the paper, where the settlement price on expiry day will be based on a blend of volume-weighted average price of the last 30 minutes and the final equilibrium price from the closing auction session at which orders are executed.

 

"In case of index derivatives, the relative contribution of transactions executed during CTS (continuous trading session) and CAS (closing auction session) would be determined based on the actual traded value during the respective periods. No separate or predetermined weight would be assigned to CTS or CAS to determine the settlement price of derivatives contracts," SEBI said in its consultation paper.

 

If the proposed blended option is chosen over the proposed volume-weighted average price only option, then it will not be subject to an interim period restriction. It will be made permanent, according to SEBI.

 

The regulator said the proposed changes were necessitated as it received feedback from "various stakeholders and market participants". SEBI acknowledged the traded value during the closing auction session had been lower than that observed during comparable periods of the continuous trading session prior to Aug. 3 when it was introduced.

 

As per data from the National Stock Exchange, barring Aug. 31, when the latest reshuffle of MSCI indices affected some Indian stocks and the closing auction session turnover rose substantially to about INR 397 billion, the average daily turnover in the closing auction was just INR 11.95 billion in August. On the BSE, the closing auction session turnover was around one-tenth of the NSE's.

 

SEBI, however, disputed the claims made by a section of market participants that trading in equity futures and options had been disrupted due to lack of price discovery from actual trades during the closing auction window of 1515 IST to 1530 IST. The market regulator provided data in the consultation paper which it said proved the trading activity in equity futures and options "continues to remain significant during the period immediately preceding and around CAS, including the transition period between cessation of CTS and commencement of the order-entry phase of CAS."

 

SEBI compared the premium traded turnover on expiring benchmark index options on expiry days during Aug. 3-Sept. 3, post launch of closing auction session, and a prior period of six months from February to July. As per the data, during Aug. 3-Sept. 3, 5.85% of NSE's expiry day premium turnover took place during the total closing auction window time of 1515 IST to 1530 IST, as against 5.72% in Feb-Jul period prior to launch of closing auction in August.

 

SEBI said in the paper it was proposing a stop to real-time dissemination of individual stocks' indicative equilibrium price-derived index value during the closing auction session, while continuing to disseminate individual stocks' indicative prices, "as the same is being misinterpreted and/or positions are being taken by the stakeholders".

 

SEBI said prior to the launch of closing auction session, the exchanges broadcast index values based on the last traded price of the constituents and also the indicative closing value based on the volume-weighted average price of constituents. At the end of the continuous trading session at 1530 IST, SEBI said since the volume-weighted average price was considered as the closing price, "the index value and the indicative close were exactly the same".

 

Post launch of closing auction session, exchanges were asked to disseminate the indicative equilibrium price-based index values during the closing auction session. SEBI realised later the difference in impact on index values when using prices from the continuously matched buy and sell orders in the continuous trading session as against the prices of the accumulating auction book during the closing auction session.

 

SEBI agreed this was a limitation. A movement in indicative equilibrium price from INR 100 to INR 103 "should not, by itself, be construed as an actual movement in the trade price of the security", according to the regulator. "It merely reflects the ongoing price discovery process and indicates the price at which the transaction could execute as at a given point if the auction was to end at such point in time," the market regulator said with emphasis.

 

In another major proposal, the framework for cancellation and modification of limit orders during closing auction session was sought to be tweaked to impose certain restrictions on limit orders beyond 1% of the reference price, in either direction. The reference price under the closing auction is the volume-weighted average price of the last 15 minutes of continuous trading session till 1530 IST.

 

SEBI said the flexibility allowed currently for cancelling or modifying led to transient and non-committal trading interest unduly influencing the auction book during the closing auction session. The market regulator, therefore, proposed while an order placed at a price within 1% of the reference price, in either direction, be allowed to cancel as currently, but an order placed at, or modified to, a price beyond 1% and up to 3% of the reference price should not be permitted to be cancelled and only price-improving modifications be permitted to such an order. The overall 3% current price band applicable in closing auction session will remain unchanged under the proposed framework, SEBI said.

 

SEBI also proposed changes to the treatment of unexecuted iceberg orders at the time of transition from continuous trading session to closing auction. Iceberg orders, according to SEBI, are those orders where a total order quantity entered by an investor is divided into smaller disclosed quantities with only the applicable disclosed portion being visible in the order book at any point in time. Currently, SEBI does not permit the transitioning of iceberg orders on the principle that it violated the disclosure-based framework of the closing auction session.

 

But in Saturday's consultation paper, SEBI said the transition may be allowed "with a view to improve liquidity" in the closing auction session. However, under this proposal, the entire pending quantity of the pending iceberg orders will be disclosed in the closing auction order book, it said.

 

SEBI's proposals in the consultation paper with regard to equity futures and option settlement prices were only for expiry days. For non-expiry days, the closing futures prices would be based on the prices determined in the closing auction session.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Rajesh Gajra and Anshul Choudhary

Edited by Shubhayan Bhattacharya

 

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