The Securities and Exchange Board of India’s (SEBI) Secondary Market Advisory Committee (SMAC) has favoured retaining the existing volume-weighted average price (VWAP) method for determining the settlement price of index and stock derivatives on expiry days for at least a year.
Under the existing method, the settlement price is calculated using the VWAP of trades executed between 3 pm and 3:30 pm during the continuous trading session.
The recommendation comes after SEBI sought public feedback on two options for determining derivatives settlement prices in a consultation paper issued on September 12.
One option proposed a blended VWAP that would incorporate trades during the final 30 minutes of continuous trading and the subsequent 10-minute closing auction session (CAS). The other proposed retaining the continuous-trading-session-only VWAP as an interim arrangement for at least a year.
The closing auction session was introduced on August 3 for stocks in the futures and options (F&O) segment.
Following its introduction, concerns were raised over price movements during the auction and their impact on derivatives settlement.
The committee has also favoured a proposed market schedule under which regular trading in stocks covered by CAS would continue until 3:30 pm, followed by a closing auction from 3:31 pm to 3:40 pm. Derivatives trading would be permitted until 3:45 pm, the report said.
The panel has also favoured continuing to display the indicative equilibrium price (IEP) during CAS, while the treatment of market orders remains under review.
Market expert Rajesh Baheti believes retaining the volume-weighted average price (VWAP) method for derivatives expiry settlement could help BSE recover from the impact of the closing auction session (CAS).
In a conversation with CNBC-TV18, the Managing Director of Crosseas Capital Services said BSE had been disadvantaged because trading volumes in CAS were disproportionately low, raising concerns over the reliability of settlement prices.
Tejas Khoday, Co-founder & CEO, FYERS, said, “SEBI listened to the market and moved quickly. Using the 30-minute VWAP for expiry settlement while the closing auction matures is a sensible call, and we hope it brings participation back.”
Watch accompanying video for full conversation.
SEBI panel favours retaining 30-minute VWAP for derivatives expiry settlement for a year
SEBI panel favours retaining 30-minute VWAP for derivatives expiry settlement for a year
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