India's capital markets regulator, SEBI, has initiated a formal review of its settlement methodology for derivative contracts. This move comes in response to growing investor concerns regarding extreme price fluctuations observed during the Closing Auction Session (CAS) on expiry days.
Traders have frequently reported sudden, sharp swings in option premiums during the auction window, a phenomenon that has raised red flags regarding the stability of the current pricing mechanism. The volatility has prompted the regulator to reconsider how these contracts are valued at the close of trading.
The current issues stem from the recent integration of the Closing Auction Session into the equity cash segment. While intended to facilitate orderly trading, the mechanism has inadvertently impacted the pricing of derivative instruments, leading to distorted settlement figures.
SEBI is expected to issue a comprehensive consultation paper in the coming days. This document will outline proposed adjustments to the pricing methodology, aiming to dampen artificial volatility and restore confidence among participants navigating expiry-day dynamics.
