The Securities and Exchange Board of India (SEBI) has retained the existing methodology for calculating settlement prices of expiring index and stock derivatives contracts, opting to use the volume-weighted average price (VWAP) of trades during the last 30 minutes of continuous trading rather than introducing a formula incorporating the closing auction session (CAS).
SEBI said settlement prices would continue to be determined using the VWAP of the underlying index’s constituent stocks or the underlying stock during the last 30 minutes of the continuous trading session (CTS) in the equity cash segment.
The review follows concerns over sharp price movements during the 10-minute CAS, particularly on expiry days since its implementation on August 3 for stocks in the futures and options (F&O) segment.
SMAC meet
Earlier in the day, the regulator’s Secondary Market Advisory Committee (SMAC) met to discuss the September 12 consultation paper and recommended retaining the earlier method for settling prices on expiry days rather than a blended method.
The settlement price of expiring index derivatives will be based on the value of the underlying index calculated using the “volume-weighted average prices (VWAP) of the constituent securities during the last 30 minutes of the Continuous Trading Session (CTS) in the equity cash segment,” SEBI said in a circular on Wednesday.
The regulator has also revised trading hours around the closing auction. CAS will run from 3.30 pm to 3.40 pm, with a one-minute transition from continuous trading, followed by order entry and matching. Trading in stock derivatives will continue until 3.45 pm on all days, including expiry days.
Trading in index derivatives will also continue until 3.45 pm, except for expiring index derivative contracts, which will stop trading at 3.30 pm on expiry days.
The changes, other than those relating to the transition of unexecuted orders from continuous trading to CAS, will take effect on December 7. Changes to the handling of unexecuted limit and iceberg orders will come into effect from February 8, 2027.
Iceberg orders
Under the revised framework, unexecuted limit orders will generally carry forward to CAS, subject to specified exclusions. Eligible iceberg orders will be carried forward as fully disclosed limit orders, unless the market participant has opted out of the transition.
Stock exchanges and clearing corporations have been directed to modify their standard operating procedures in consultation with SEBI within seven days of the circular’s issuance.