Sebi to address derivatives expiry settlement price concerns: Tuhin Kanta Pandey
The Securities and Exchange Board of India is seeking to alleviate concerns related to derivative settlement prices. Among the proposed options are a blended VWAP model and a return to the previous VWAP method. Sebi is open to public feedback on these alternatives, which are intended to enhance market structure. Currently, market participants have shown favor for the older VWAP technique.
Mumbai: On Tuesday, Sebi chief Tuhin Kanta Pandey stated that the regulatory body will tackle issues related to derivatives settlement prices on expiry days and other associated concerns. Following the establishment of the Closing Auction Session as a significant market structure reform, the regulator aims to address these matters. A consultation paper has been released for public feedback, according to Pandey at an event.
On September 12, Sebi presented two alternatives for calculating the settlement price of index and single-stock derivatives on expiry days. The first proposal involves a blended VWAP, which incorporates trades executed during the last 30 minutes of the continuous trading session and the 10-minute cash auction session. Each period's contribution is based on the actual traded value, without assigning a predetermined weight to prices discovered through the closing auction or the cash market.
The second option, suggested by Sebi, is to temporarily revert to the older VWAP methodology, considering only trades executed during the last 30 minutes of the continuous trading session.
The regulator may keep the older system in place for at least a year before potentially transitioning to the blended methodology, contingent on sufficient liquidity, market participation, and familiarity with the cash auction session. Market participants seem more inclined towards the latter option of reverting to the VWAP system for now.
Pandey indicated that Sebi is also considering further deepening the cash market by expanding participation, improving securities borrowing and lending, and supporting hedging and arbitrage activities.
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