Late Thursday, India's market regulator said it will determine expiry settlement using a VWAP - the average price weighted by trade size - from the final half hour of uninterrupted trading. That reinstates the prior method and rolls back the auction feature started on Aug. 3 that sent reference prices lurching and threw trading into disarray.
"Participants going ahead will have greater clarity and predictability around expiry settlement prices," said Dhiraj Relli, managing director at 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 comes as the market adjusts to curbs meant to tamp down speculation. When the auction launched, the National Stock Exchange of India Ltd., the top local venue, saw average daily equity-derivatives turnover drop to an 18-month low, while BSE Ltd. recorded a one-third decline, before ticking up slightly in September. SEBI's broader effort to limit excesses is still in place, but observers expect the new settlement approach to gradually support activity in options and futures.
According to Jefferies analysts, the adjustment should temper expiry-day volatility and assist brokers whose order volumes are still below pre-auction levels. Jefferies kept their recommendation at buy for Billionbrains Garage Ventures Ltd., which operates Groww and is billed as India's largest retail brokerage.
With a steadier settlement price, strategies sidelined by the auction can restart. Proprietary desks may find expiry risk easier to manage, a pickup in trading could aid transaction revenue for brokers and exchanges, and arbitrageurs could execute hedges and spreads more cleanly across cash equities and derivatives.
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At broker 021 Trade, founder and chief executive officer Eshaan Lazarus said, "Lower liquidity in the CAS was responsible for participants with relatively smaller book sizes being able to influence closing prices, especially in thinly traded instruments." "Reverting to the earlier VWAP system will reduce the scope for such swings, making the process more predictable and potentially bringing back traders who stayed away due to concerns of unfair settlement prices."
A clearer expiry playbook reduces a key source of noise. If volumes continue to mend and volatility cools on settlement days, that steadier backdrop supports broker activity and can make derivatives exposures easier to hedge.
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