Market regulator Securities and Exchange Board of India's (SEBI) Secondary Market Advisory Committee (SMAC) has favoured retaining the existing volume-weighted average price (VWAP) methodology for determining the settlement price of index and stock derivatives on expiry days, rejecting an immediate shift to a blended formula incorporating closing auction session (CAS) prices, three sources told Moneycontrol.
Under Option 2 of SEBI's September 12 consultation paper, the settlement price will be calculated using the VWAP of trades executed between 3 pm and 3:30 pm during the continuous trading session (CTS). The panel has favoured retaining this arrangement for at least a year before the regulator considers a transition to a new methodology, sources said.
The recommendation follows feedback from market participants after CAS was introduced for stocks in the futures and options (F&O) segment on August 3. The mechanism replaced the earlier closing-price process with an auction-based system, prompting concerns over price volatility and the impact of auction-derived prices on derivatives settlement.
SEBI's consultation paper had offered two alternatives: a blended VWAP incorporating trades during the final 30 minutes of continuous trading and the 10-minute auction, or retaining the CTS-only VWAP as an interim arrangement.
The committee has also favoured a revised market schedule under which normal trading in CAS stocks will continue until 3:30 pm. Following a one-minute transition period, the closing auction will run from 3:31 pm to 3:40 pm. Derivatives trading will also be permitted until 3:45 pm, giving the segment a five-minute window after the conclusion of CAS, sources said.