His comments come after unusual price action in the derivatives market on expiry day highlighted how traders can end up placing “blind bets” on the final closing price.
Speaking to CNBC-TV18, Narayan said displaying the indicative closing price throughout the closing auction would give traders and investors a better sense of where the market is headed, while also helping reduce unnecessary volatility in futures and options (F&O).
Expiry-day uncertainty remains a concern
The discussion followed an example from the options market where a Nifty call option with a 79,300-strike price traded at ₹60 at 2:55 pm, only to jump to ₹120 at 3:25 pm during the closing auction (August 6th).
Eventually, the index closed below the strike price, leaving the option worthless at expiry.
The episode highlighted how traders were effectively betting on the final auction price without knowing where the market was likely to settle.
Live indicative prices can help
Narayan said the solution is to make the indicative closing price available to all market participants throughout the auction period.
“At every instant, there should be an indicative price available to all market participants to see,” he said.
He explained that if a stock is likely to close around 1% higher based on the bids and offers received during the auction, that information should be visible to everyone.
This would allow traders and investors to judge whether prices are moving away from fair value and decide whether they want to participate.
Similar to the pre-open session
When asked whether this would be similar to the morning pre-open session, Narayan said the concept is largely the same.
“In fact, we changed the nature of what happens in the pre-open based on what we learned from the Closing Auction Session,” he said.
However, he pointed out that the closing auction typically sees much higher trading activity than the opening session.
Because of that, market participants should not only see the indicative price but also information on order imbalances—whether there are more buyers or sellers waiting in the auction.
Why this matters for derivatives
Narayan said this information would serve two important purposes.
First, it would give the derivatives market an anchor during expiry.
“It provides information to the derivative market on where things stand as of now… so that it becomes an anchor or at least an indicator for the derivative market,” he said.
While the indicative price would not be the final closing price, it would reduce uncertainty by giving traders a clearer reference point.
Second, it would encourage more investors to participate in the closing auction.
If traders notice the indicative price moving away from what they believe is the fair value, they are more likely to enter buy or sell orders, helping improve price discovery.
Broker platforms need improvement
Narayan said the bigger issue is that the indicative price is still not easily available on all broker trading platforms.
According to him, some broker frontends only display the indicative price after a trader places an order.
“That should not be the case. I should be able to see the indicative price and the imbalance at all points in time,” he said.
Watch what Ananth Narayan said here
He added that if he were still at SEBI, his first priority would be to ensure that anyone interested in participating in the market could freely view both the indicative closing price and the order imbalance throughout the Closing Auction Session.
Making that information widely available, he said, would improve transparency, help the derivatives market function more efficiently and encourage broader participation in the closing auction.
Catch all the latest updates from the stock market here
