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SEBI May Revise Derivatives Settlement Price Rules After CAS Feedback
The market regulator is reviewing how expiry-day settlement prices for derivatives are calculated after receiving feedback from traders and other stakeholders following the introduction of the Closing Auction Session.
New Delhi: The Securities and Exchange Board of India (SEBI) is preparing to review the methodology used to determine settlement prices for derivative contracts following feedback received after the introduction of the Closing Auction Session (CAS).
The regulator is expected to announce proposed changes in about a week, according to the information provided.
SEBI said it has been engaging with market participants and other stakeholders to assess the initial experience with CAS. Feedback has been received through multiple channels, including social media and other media platforms.
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Settlement Price Becomes Key Area Of Concern
One of the major issues raised during the feedback process concerns the calculation of expiry-day settlement prices for derivative contracts.
Under the current arrangement, the closing price determined through the Closing Auction Session is used as the basis for determining the settlement price of certain derivative contracts.
SEBI said feedback received from stakeholders has highlighted concerns surrounding this methodology.
After reviewing the initial period of CAS implementation and considering the suggestions received from market participants, the regulator said it may propose changes to the way derivative settlement prices are calculated.
Proposed Changes Will Go Through Consultation
SEBI has indicated that any changes will not be implemented immediately.
The regulator said the proposed methodology would first be discussed with stakeholders before a final decision is taken.
This means market participants are likely to have an opportunity to provide further feedback on the proposed framework before SEBI finalises the changes.
What Is The Closing Auction Session?
The Closing Auction Session (CAS) is a mechanism used to determine the official closing price of securities based on orders collected during the auction period.
The introduction of CAS has implications beyond the cash market because the closing price can also influence the settlement value used for derivative contracts.
The feedback received by SEBI suggests that the interaction between the CAS-derived closing price and derivative expiry settlements requires further consideration.
What Happens Next?
SEBI is expected to outline its proposed changes shortly.
The regulator’s review will focus on addressing concerns that emerged during the early implementation of CAS while incorporating suggestions from market participants.
However, the final methodology will only be determined after the consultation process is completed.
For traders and other derivatives-market participants, the changes could be important because settlement prices directly affect the final value used to close out contracts at expiry.
FAQ
Why is SEBI reviewing derivative settlement prices?
SEBI is reviewing the methodology after receiving feedback and concerns from market participants following the implementation of the Closing Auction Session.
What is the Closing Auction Session?
The Closing Auction Session is a mechanism used to determine a security’s official closing price through an auction-based process.
What issue has SEBI identified?
A significant area of feedback concerns the use of the CAS-determined closing price for calculating settlement prices of derivative contracts on expiry.
When will SEBI announce changes?
According to the supplied information, SEBI is expected to announce or propose changes in approximately one week.
Will the proposed changes become effective immediately?
No. SEBI said the proposed changes will be taken up for consultation with stakeholders before being finalised.
Who could be affected by the changes?
The changes could be particularly relevant to participants in the derivatives market, including traders and other market participants whose contracts are settled based on expiry-day prices.
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The post SEBI May Revise Derivatives Settlement Price Rules After CAS Feedback first appeared on informalnewz.
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