Investor Statements May Get A Fresh Rulebook, SEBI Likely To Float CAS Consultation Paper: Report

Mumbai: The Securities and Exchange Board of India (SEBI) may soon release a consultation paper to review the Closing Auction Session (CAS) system, addressing potential changes to how settlement prices for derivative contracts are established on expiry days, according to a report. The proposed amendments could be discussed at the upcoming SEBI board meeting on September 24, in response to market participants' worries over sharp price fluctuations during the recently implemented closing auction mechanism.

While CAS is projected to persist, SEBI might modify the methodology employed to compute settlement prices for derivatives during these expiry sessions. SEBI Chairman Tuhin Kanta Pandey has already signaled that CAS is set to remain, acknowledging the regulatory body's evaluation of market participants' concerns. Introduced on August 3, CAS concludes continuous trading in futures and options-eligible stocks at 3:15 pm.

The securities then proceed through a 20-minute auction, during which buy and sell orders are matched to determine the official closing price. Non-F&O shares continue trading until 3:30 pm, whereas stock and index derivatives remain open until 3:40 pm. The recent volatility during derivatives' expiry sessions has drawn significant attention.

During a recent session, the indicative Sensex closing level experienced a brief drop of around 2.5%, leading to a staggering 400-500% surge in certain put option premiums during the closing auction. Nifty put options also witnessed substantial price movements during an expiry-day session. Market participants have expressed concerns that insufficient liquidity in the auction could enable a limited number of orders to exert considerable influence on closing prices.

Analysts believe CAS has complicated expiry-day execution prediction for systematic options strategies. Consequently, any potential changes to the SEBI CAS framework are anticipated to concentrate on enhancing settlement-price reliability while maintaining the integrity of the closing auction mechanism.