SEBI will revise the derivative settlement method linked to CAS after market volatility raised concerns. The regulator announced the move on Thursday, September 4, following the first month of CAS operations.
SEBI plans to issue a consultation paper explaining the proposed changes within about a week. The review covers expiry settlement rules and their connection with CAS closing prices.
The Securities and Exchange Board of India introduced CAS on August 3 across eligible stocks in India. The system replaced the earlier VWAP method for determining closing prices in stocks with derivatives.
SEBI began the review after sharp expiry day swings and closing price differences emerged. The regulator also received feedback from brokers, exchanges, traders, funds and other market participants.
Under the current framework, the CAS closing price helps determine derivative settlement prices during contract expiry. Market participants raised concerns about sudden price movements around the auction session. Such movements became particularly visible during Sensex derivative expiries in August.
On August 13, SEBI took action against two entities over alleged Sensex level manipulation during CAS. The regulator later saw heavy volatility during the August 27 monthly F&O expiry. Sensex also recorded sharp movements during Thursday's CAS session.
SEBI said the CAS framework followed extensive consultations and detailed policy discussions. “Among the issues raised, a significant area of feedback relates to the determination of settlement prices,” the regulator said.
The regulator has monitored CAS closely throughout its first month of operation. SEBI also engaged exchanges, brokers, proprietary traders, software vendors, mutual funds and FPIs during this period.
The upcoming consultation paper could examine alternative settlement methods for derivative contracts. Possible changes may reduce the direct impact of a single CAS closing price on F&O expiry settlement.
SEBI has not indicated plans to remove CAS from the market structure. The review instead focuses on making derivative settlement more stable during volatile expiry sessions.
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