SEBI F&O settlement tweak may cut reliance on closing auction, says Kotak
Brokerage says blended 40-minute trade pool could help, but cash-market depth still needed to make CAS robust
SEBI has proposed changes to the settlement of futures and options contracts that could reduce reliance on the Closing Auction Session to determine expiry prices, according to a report by Kotak Institutional Equities. The current settlement mechanism relies on a short auction held at the end of the trading session, which has raised concerns as a small, shallow cash auction currently determines expiry payoffs in the larger derivatives market.
SEBI's options include determining the settlement price based on trades executed during the last 30 minutes of the Continuous Trading Session and the 10-minute Closing Auction Session, or temporarily returning to an earlier system that uses the volume-weighted average price during the last 30 minutes of normal trading. The proposal aims to deepen cash-market participation, improve securities borrowing and lending, and strengthen the link between the cash and derivatives markets.
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