CAS closing price under review: Sebi proposes 2 options for expiry settlement
The Securities and Exchange Board of India (Sebi) is reviewing the methodology for calculating derivative settlement prices on expiry. They have proposed two options, including a blended Volume Weighted Average Price, to address market participant concerns regarding the current Closing Auction Session framework.
Why it matters
This change could significantly impact how derivative contracts are settled, affecting market stability and investor confidence in Indian equity markets.
The closing auction session (CAS) could see a change in how its closing price is used for settling index and stock derivative contracts on expiry, with markets regulator Sebi proposing two alternative methodologies after reviewing the newly introduced framework.Sebi’s consultation paper released on Saturday seeks stakeholder views on whether derivative settlement prices should be calculated using a blended Volume Weighted Average Price (VWAP) or whether the existing methodology should continue.Under the first option, the settlement price would be based on a blended VWAP of trades executed during the final 30 minutes of the continuous trading session (CTS) and those executed during the 10-minute CAS. The second option would retain the existing CTS VWAP methodology.The review comes after market participants raised concerns over using the CAS-determined closing price to settle derivative contracts on expiry.
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