BSE Shares Rise 5% After SEBI Said To Review Derivatives Settlement Rules Amid CAS Concerns

On September 4, BSE shares surged nearly 5% following the Securities and Exchange Board of India's (SEBI) announcement to review the method used for settling derivatives contracts due to concerns over the newly introduced Closing Auction Session (CAS). The BSE stock opened at Rs 3,400, up from the previous close of Rs 3,306, and jumped to Rs 3,474, marking a gain of over 5% compared to the previous close. By 10:45 am, the stock was trading 4.4% higher.

The CAS, launched on August 3 to determine official closing prices of stocks, faced several challenges, including discrepancies in index closing levels between exchanges, sharp movements in options prices, and concerns over potential price manipulation, particularly during derivative expiry days. SEBI received feedback from various market participants, leading to the consideration of changes to the method for calculating derivative contract settlement prices.

SEBI expressed that it would release a discussion paper within a week, outlining potential modifications to the settlement price mechanism. BSE shares were trading at ₹3,453.8 by the morning trade, up 4.5% following the announcement. Market participants have raised concerns over low liquidity during the closing auction process. BSE Managing Director and CEO Sundararaman Ramamurthi revealed that participation in the CAS remained limited due to liquidity issues.

He proposed separating futures and options expiry from CAS and implementing the system gradually, as well as restricting order modifications during the auction process. BSE is currently compiling feedback from market participants before presenting recommendations to regulators.