SEBI’s consultation paper outlines sweeping reforms The Securities and Exchange Board of India (SEBI) released a consultation paper on Saturday proposing a revamp of the expiry‑day trading framework. The key changes target the Closing Auction Session (CAS), market timings and the methodology used to settle derivative contracts.
Core proposals - **Derivatives settlement decoupled from cash‑market close** – Settlement prices will no longer be required to match the cash‑market closing price, recognising that the two markets serve different purposes. - **No live indicative index during CAS** – The real‑time index that currently updates during the auction will be stopped, a step aimed at reducing volatility caused by unexecuted orders. - **Stricter binding for aggressive orders** – Orders placed beyond a one‑per‑cent price band will become more binding, limiting the ability to cancel large orders at the last moment. - **Additional refinements** – The paper also suggests allowing iceberg orders in CAS, shortening the transition period, cutting the post‑CAS derivatives trading window to five minutes, and keeping regular trading until 3.30 pm before the auction begins.
Industry reaction **Feroze Azeez**, Joint CEO of Anand Rathi Wealth, welcomed the three‑point focus on cash‑derivative price linkage, indicative‑price distortion and order‑cancellation abuse. He called the delinking of settlement prices the “most important development,” noting that it acknowledges the distinct roles of cash and derivatives markets. Azeez also praised the removal of live indicative indexes and the tighter binding of aggressive orders, saying they should curb manipulation. He cautioned against a blended VWAP that mixes continuous trading with the auction, calling it unnecessarily complex.
**Rajesh Singla**, CEO of Alpha AMC, agreed that the closing auction concept is sound but highlighted that thinly‑traded stocks suffer amplified volatility on expiry. He urged SEBI to consider mid‑session auction‑price disclosures, market‑maker incentives and a phased rollout across market‑cap segments.
**Trivesh Dinesh**, COO of Tradejini, supported the proposal to base expiry‑day settlement on the VWAP of the last 30 minutes of continuous trading, describing it as a simple, well‑understood method. He also backed extending regular trading to 3.30 pm, arguing it creates a more intuitive market structure, and welcomed the halt of live indicative index values while retaining security‑level indicative prices for auction participants.
Why the changes matter now The CAS was introduced on 3 August for equities with derivatives, replacing the earlier VWAP‑based closing price. While CAS improved price discovery, market participants flagged volatility spikes and manipulation risks on expiry days, especially in less‑liquid stocks. SEBI’s proposals aim to address these pain points, enhancing transparency, reducing abrupt price swings and simplifying the settlement process for all market participants.
Looking ahead SEBI has indicated it will revisit the framework within weeks of implementation, signalling a willingness to fine‑tune the rules based on market feedback. Stakeholders will be watching for the final rulebook, the timeline for mandatory adoption, and any sector‑specific roll‑out plans.
--- *The article is based on statements from market experts and SEBI’s consultation paper released on Saturday.*