India's equity-derivatives market may extend its nascent recovery after the regulator reverted to an earlier mechanism to settle prices, easing confusion that has weighed on trading activity. The Securities and Exchange Board of India announced late Thursday that derivative settlements on expiration days will use the volume-weighted average prices of underlying stocks during the final 30-minutes of continuous trading. This move reverses a key feature of the closing auction session introduced on Aug. 3, which led to wild swings in the reference price and plunged the market into chaos.
Participants will have greater clarity and predictability around expiry settlement prices, said Dhiraj Relli, managing director of HDFC Securities Ltd. This should help restore trader confidence, reduce uncertainty-driven changes in trading behavior and potentially bring derivatives volumes closer to pre-CAS levels over time. The reversal could provide a much-needed boost to a market grappling with regulatory curbs aimed at reining in speculative trading.
In the month the auction system was introduced, the average daily turnover in equity derivatives fell to an 18-month low on the National Stock Exchange of India Ltd., the nation's leading bourse, and by one-third on smaller BSE Ltd., before a slight rebound in September. While SEBI's push to curb excesses remains, market watchers expect the move to help boost trading in options and futures over time. The latest change should reduce volatility on expiration days, potentially benefiting brokers whose order volumes remain below pre-auction levels.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing