The closing auction session (CAS) could see a change in how its closing price is used for settling index and stock derivative contracts on expiry, with markets regulator Sebi proposing two alternative methodologies after reviewing the newly introduced framework.Sebi’s consultation paper released on Saturday seeks stakeholder views on whether derivative settlement prices should be calculated using a blended Volume Weighted Average Price (VWAP) or whether the existing methodology should continue.Under the first option, the settlement price would be based on a blended VWAP of trades executed during the final 30 minutes of the continuous trading session (CTS) and those executed during the 10-minute CAS. The second option would retain the existing CTS VWAP methodology.The review comes after market participants raised concerns over using the CAS-determined closing price to settle derivative contracts on expiry. The issue was among the significant areas of feedback received by Sebi following the introduction of CAS in the equity cash segment.The CAS framework was introduced from August 3 for determining the closing price of securities. Under the framework currently in place, the closing price arrived at through CAS is also used as the basis for determining settlement prices of derivative contracts on expiry.It is this link between the CAS closing price and expiry-day derivative settlement that has prompted the regulator to revisit the methodology. Sebi had said on September 3 that it could propose changes based on the feedback received from market participants and indicated that a consultation paper was likely to be issued in about a week.The two options now put forward by Sebi are aimed at addressing concerns around using the CAS-determined closing price for expiry-day settlement of derivatives.Stakeholders have been asked to submit their comments on the proposals by October 3.
