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SEBI's Policy Reversal Breathes New Life Into India's Derivatives Market
M
Moneycontrol•19-10-2026, 07:30
SEBI's Policy Reversal Breathes New Life Into India's Derivatives Market
- •The Securities and Exchange Board of India reverted to using volume-weighted average prices during the final 30 minutes of trading for derivative settlements on expiration days.
- •This regulatory U-turn reverses the closing auction session introduced on August 3, which had caused wild price swings and market chaos.
- •Market participants believe the move will restore trader confidence, reduce uncertainty, and help trading volumes recover toward pre-CAS levels.
- •The equity-derivatives market had previously slumped to an 18-month low on the National Stock Exchange following the introduction of the auction system.
- •Analysts note that the predictable settlement mechanism will reduce expiration day volatility, benefiting brokers, proprietary desks, arbitrageurs, and exchanges.
Key Questions Answered
SEBI reverted to using the volume-weighted average prices of underlying stocks during the final 30 minutes of continuous trading to settle derivatives on expiration days, reversing the closing auction session mechanism introduced on August 3.
The closing auction system introduced on August 3 led to wild swings in reference prices, plunging the market into chaos, prompting SEBI to review and partially reverse the mechanism after receiving extensive feedback.
During the month the auction system was launched, average daily turnover in equity derivatives fell to an 18-month low on the National Stock Exchange and dropped by one-third on the smaller BSE.
