Mumbai, Sep 12 (IANS) The Securities and Exchange Board of India (SEBI) has proposed changes to settlement methodology for derivatives contracts, market timings and recently introduced operational aspects of the Closing Auction Session (CAS), according to consultation paper issued on Saturday.
The market watchdog proposed two options for determining the settlement price of index and single-stock derivatives on expiry days.
Under the first option, SEBI proposed a ‘Blended VWAP’ methodology under which the settlement price would be based on trades executed during the last 30 minutes of the Continuous Trading Session (CTS) and the 10-minute CAS period.
The contribution of each period would be determined by its actual traded value instead of a fixed weighting, SEBI said.
The regulator said the methodology would capture a broader period of actual market transactions and could provide a more representative settlement price.
“Incorporate actual transactions executed during both the last 30 minutes of CTS and 10 minutes of CAS for determination of the settlement price of the derivatives contracts on the expiry day, thereby reflecting a broader period of actual market transactions,” it said.
Under the second option, SEBI proposed retaining the existing CTS VWAP methodology as an interim arrangement. The settlement price would continue to be based only on trades executed during the final 30 minutes of CTS.
The blended methodology could be considered after at least a year, subject to adequate liquidity, participation and familiarity with CAS, according to the market regulator.
SEBI also proposed removing the display of the Indicative Index Value (IIV) during CAS while continuing to provide security-level Indicative Equilibrium Prices (IEPs).
IEPs are indicative and evolving values and do not represent prices at which actual trades have taken place, SEBI said. The regulator added that some market participants had misinterpreted IIV, resulting in positions being taken based on the indicative value.
In addition, on market timings SEBI proposed two alternatives. Under Option A, CTS for CAS stocks would continue until 3:30 pm, followed by CAS from 3:31 pm to 3:40 pm, while derivatives trading would continue until 3:45 pm.
Under Option B, CTS would end at 3:15 pm with CAS running from 3:15 pm to 3:25 pm and derivatives trading continuing until 3:30 pm.
Both alternatives would reduce the transition period between CTS and CAS from five minutes to up to one minute. The post-CAS derivatives trading window would also be cut to five minutes from 10 minutes.
SEBI said market feedback indicated that a shorter trading window after CAS would be sufficient.
Apart from that, the regulator proposed restricting the cancellation of limit orders placed beyond plus or minus 1 per cent of the reference price during CAS. Price-improving modifications would continue to be permitted within the existing plus or minus 3 per cent price band.
“An order placed at a price within ±1 per cent of the Reference Price may be cancelled during CAS in accordance with the existing framework,” it said.
Moreover, SEBI suggested allowing unexecuted Iceberg orders at the end of CTS to be converted into normal limit orders with entire pending quantity disclosed in the CAS order book.
–IANS
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