Sebi for changes to CAS timing, derivatives settlement prices
Sebi has put forth new proposals aimed at modifying the Closing Auction Session timings and derivatives pricing. Following the recent launch of the session, traders have noted an uptick in market volatility. The regulator is evaluating two potential options for determining derivative settlement prices, suggesting a shift in market timings to include a transition break and longer trading…
Mumbai: The market regulator, Sebi, has suggested several alterations to the recently established Closing Auction Session (CAS) timings and the derivatives pricing mechanism. The CAS, introduced on August 3, has sparked controversy among traders and investors due to its potential to heighten stock price and index volatility.
Last week, Sebi announced it was working on a consultation paper concerning CAS and derivatives pricing. The paper recognized concerns surrounding the pricing of derivatives contracts, particularly on expiration days.
Two options are proposed in Sebi's consultation paper for determining the settlement price of derivatives trades. The first option involves combining the price discovered in the last 30 minutes of regular trading, known as the continuous trading session with volume weighted average price (CTSWAP), and the price from CAS. The second option is to use the price found in the last 30 minutes of regular trading, with CAS trades considered for derivatives pricing after a year.
The regulator also proposes adjustments to market timing. After regular trading concludes, a one-minute transition break will occur, followed by CAS for nine minutes. There will then be an additional five-minute window for derivatives trading.
Under the first option, regular trading would continue until 3:30 pm, with CAS and derivatives trading extending to 3:45 pm. The second option would end regular trading at 3:15 pm, followed by CAS and derivatives trading until 3:30 pm.
The consultation paper also proposes that the reference price for CAS will continue to be based on the last 15-minute volume weighted average price (VWAP) of continuous trading. The CAS price band remains at ±3%, and orders within the ±1% band can be cancelled. Orders between ±1% and ±3% cannot be cancelled but can only be modified to improve the price, according to the proposal.
Sebi has requested comments on the paper until October 3.
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