SEBI is rolling back to the pre-August approach for how expiring index and single-stock derivatives are settled. According to a circular published late Thursday, on expiry days the closing settlement will be derived from the average price, weighted by traded volume, across the last 30 minutes of the session. The change kicks in on Dec. 7 and effectively separates the recently introduced closing auction from the way F&O contracts reach their final prices.
Stocks that are part of the closing auction will continue to trade continuously until 3:30 p.m. local time, matching the close for other securities. The closing auction itself will then run for 10 minutes, finishing at 3:40 p.m.
After the auction went live in August, traders flagged that expiry-day settlement sometimes looked out of sync with cash market moves, raising questions about the cross talk between cash and derivatives. SEBI reviewed the setup and is now moving to curb the effect of unusually large auction prints on expiring contracts. Data cited from NSE and Bloomberg shows that, beyond index rebalancing days, activity in the CAS has been thin.
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If you trade options or futures around expiry, your final price will once again reflect a broader slice of regular trading rather than a quick burst in the auction window. Translation for the everyday investor: less chance that a last-minute auction jump or dip decides the outcome of your hedge or short-term trade.
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