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Sebi Weighs Old Settlement Prices for Nifty, Sensex Options
7 Sep
Summary
- Regulator may bring back old volume-weighted price mechanism for derivatives.
- Goal is to smooth out last-minute swings on settlement days.
- Sebi to issue consultation paper on settlement process review within a week.
The Securities and Exchange Board of India (Sebi) is reviewing its derivatives settlement process, potentially reverting to an older mechanism. This comes after market feedback indicated that the recently implemented closing auction session (CAS) has caused significant price distortions on settlement days.
The regulator is considering reintroducing the volume-weighted average price (VWAP) model, or a combination of VWAP and CAS prices, for settling weekly and monthly derivatives. The primary objective is to mitigate sharp, last-minute price fluctuations in Nifty and Sensex options that have widened the gap between the two indices.
Prior to August 3, derivatives were settled using a 30-minute VWAP. The CAS, introduced for 213 stocks, led to settlements based on prices discovered in thinly traded auctions. This has prevented arbitrage traders from smoothing out price differences, as the final CAS price is only known late in the trading session.
A Sebi consultation paper on the matter is expected within a week. The Sebi board may discuss public feedback on this consultation paper during its meeting on September 24. The regulator's decision is aimed at ensuring smoother settlement processes and reducing index divergence.
