SEBI to partly reverse derivatives closing auction rules after price swings
The regulator is expected to return to a 30-minute average pricing model for at least a year following 20,000 market complaints.
India’s markets regulator is preparing to roll back its newly introduced closing auction rules for derivatives settlement, following wild price swings on expiry days and intense pushback from the trading community.
According to details of the plan reported by Reuters, the Securities and Exchange Board of India (SEBI) is set to suspend the use of its new closing auction session for calculating derivatives settlement prices for at least a year. Instead, the regulator will return to the older method of using the volume-weighted average price of the final 30 minutes of trading to determine where these contracts settle.
Why SEBI is changing course
The retreat comes just weeks after the new system was put in place. Designed to bring India into line with major global financial hubs like New York and Hong Kong, the closing auction session was intended to create a more stable and manipulation-resistant pricing mechanism.
Under the system, a short auction at the very end of the trading day is used to match buy and sell orders, establishing a single equilibrium closing price for a stock. But when applied to stocks tied to active futures and options contracts, the auction concentrated immense trading volume into a very brief window. On expiry days, when massive derivative positions must be closed or rolled over, this concentration triggered sharp, erratic price moves that caught traders off guard.
How the closing auction created volatility
The scale of the market's unease became obvious over the weekend. In a post on social media platform X, SEBI disclosed that it had received an extraordinary 20,000 suggestions and comments in response to a consultation paper on the rules.
While derivatives trading will return to the 30-minute average pricing method, the closing auction session is not being abandoned entirely. It will still be used to set end-of-day prices for underlying stocks in the less liquid cash market, where the risk of sudden derivative-driven spikes is much lower.
What happens next
The revised approach actually aligns India more closely with standard practices in European and US markets. In those jurisdictions, derivatives settlements are typically calculated using dedicated pricing mechanisms, such as volume-weighted average prices over set trading periods, rather than relying on a single closing auction.
The regulator is expected to formalise and implement the changes by the end of October. SEBI has not officially commented on the plans.
Key numbers
| What | Figure | Source |
|---|---|---|
| Feedback items received by SEBI | 20,000 | SEBI social media post |
| Duration of proposed suspension | At least one year | Reuters sources |
| Target implementation date | End of October | Reuters sources |
In this story
| Name | Role in the story |
|---|---|
| Sebi | The regulatory body reforming the settlement rules. |
