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 t...
By ET Bureau | Updated:
ET Bureau
Having successfully established the Closing Auction Session as an important market structure reform, we intend to address concerns in respect of settlement price for derivatives on expiry days and other related issues.
Mumbai: The Securities and Exchange Board of India(Sebi) will address concerns over the settlement price for derivatives on expiry days and other related issues, its chief Tuhin Kanta Pandey said on Tuesday.
"Having successfully established the Closing Auction Session as an important market structure reform, we intend to address concerns in respect of settlement price for derivatives on expiry days and other related issues. A consultation paper has already been issued inviting public comment," Pandey said at an event.
On September 12, Sebi proposed two alternatives to determine the settlement price of index and single-stock derivatives on expiry days.
Read more: Sebi to address concerns over settlement price for derivatives on expiry days, says chief Tuhin Kanta Pandey
The first is a blended VWAP (volume-weighted average price), which would use trades executed during the last 30 minutes of the continuous, or regular, trading session (CTS) and the 10-minute CAS. The contribution of each period would be based on the actual traded value, without assigning any predetermined weight to prices discovered through either the closing auction (CAS) or the cash market (CTS).
The second option put forward by Sebi is to temporarily revert to the older system - the VWAP methodology, under which only trades executed during the last 30 minutes of a continuous trading session would be considered.
Read more: After Hindenburg: 5 Adani group companies settle disclosure violation case with Sebi
Sebi said this could remain in place for at least one year before a possible transition to the blended methodology, subject to adequate liquidity, participation and market familiarity with CAS.
Market participants are more in favour of the second option of reverting to the VWAP system for now.
The Sebi chairman said, the regulator is also planning to further deepen the cash market by widening participation, improving securities borrowing and lending, and supporting hedging and arbitrage.
"Having successfully established the Closing Auction Session as an important market structure reform, we intend to address concerns in respect of settlement price for derivatives on expiry days and other related issues. A consultation paper has already been issued inviting public comment," Pandey said at an event.
On September 12, Sebi proposed two alternatives to determine the settlement price of index and single-stock derivatives on expiry days.
Read more: Sebi to address concerns over settlement price for derivatives on expiry days, says chief Tuhin Kanta Pandey
The first is a blended VWAP (volume-weighted average price), which would use trades executed during the last 30 minutes of the continuous, or regular, trading session (CTS) and the 10-minute CAS. The contribution of each period would be based on the actual traded value, without assigning any predetermined weight to prices discovered through either the closing auction (CAS) or the cash market (CTS).
The second option put forward by Sebi is to temporarily revert to the older system - the VWAP methodology, under which only trades executed during the last 30 minutes of a continuous trading session would be considered.
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Read more: After Hindenburg: 5 Adani group companies settle disclosure violation case with Sebi
Sebi said this could remain in place for at least one year before a possible transition to the blended methodology, subject to adequate liquidity, participation and market familiarity with CAS.
Market participants are more in favour of the second option of reverting to the VWAP system for now.
The Sebi chairman said, the regulator is also planning to further deepen the cash market by widening participation, improving securities borrowing and lending, and supporting hedging and arbitrage.
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