The Securities and Exchange Board of India (SEBI) has revised the framework for the Clearing and Settlement (CAS) mechanism, introducing changes to the auction window and the calculation of reference prices for eligible securities.
The market regulator on Thursday rolled back the closing auction session (CAS) framework for derivatives settlement, which was introduced in August and led to sharp swings in benchmark indices on expiry days.
In a late-night circular, SEBI said that the closing price will be calculated based on a 30-minute volume-weighted average price (VWAP) on derivatives expiry days i.e. Tuesday and Thursday.
In September, SEBI proposed two options for determining settlement prices for index and single-stock derivatives on expiry days. Under the first option, the regulator suggested introducing a ‘Blended VWAP’ method, under which the settlement price would be calculated using trades executed during the final 30 minutes of the Continuous Trading Session (CTS) and the 10-minute Closing Auction Session (CAS).
The second option was to retain the existing CTS-based VWAP method, under which only trades executed during the final 30 minutes of continuous trading would be considered for calculating the settlement price.
The Closing Auction Session (CAS) will operate as a separate 10-minute session from 3:30 p.m. to 3:40 p.m. on all trading days. The order-entry window will close at a randomly determined time, with the closure controlled by the system.
Once order entry ends, stock exchanges will match orders in accordance with the CAS framework. The closing price determined through the auction, along with the quantity of securities traded, will be disseminated to market participants as soon as practicable after order matching is completed.
Revised trading timings for index and stock derivatives
Trading in index derivatives contracts will continue until 3:45 p.m. on regular trading days. However, on expiry days, trading in expiring index derivatives contracts will end at 3:30 p.m. Stock derivatives contracts, meanwhile, will remain open for trading until 3:45 p.m. on all trading days, including expiry days.
CAS framework to apply during special trading sessions
The closing prices of securities covered by CAS will also be determined through the auction mechanism during special trading sessions conducted by stock exchanges. The duration of CAS during these sessions will remain the same as that prescribed for regular trading days. The derivatives segment will close five minutes after the auction ends, followed by a 10-minute post-close session that will begin five minutes after the derivatives segment closes.
(more to come)