India's regulator to pause closing-auction pricing for derivatives for at least a year

In August, India’s markets regulator, the Securities and Exchange Board of India, launched a closing-auction mechanism to set closing prices for stocks linked to futures and options, mirroring systems used in the US and Hong Kong. Traders reported volatile swings in derivatives prices on expiry days, leading to a formal review. Over a weekend, Sebi announced it had collected roughly 20,000 suggestions on a consultation paper and will now use the volume-weighted average price of the final 30 minutes of trading to determine settlement values, while retaining the auction for illiquid cash-market stocks.

The board plans to roll out the revised method by month-end, a move that should bring India’s pricing approach closer to that of US and European markets. Feedback also indicated that removing the interim index value would not improve transparency, so the regulator will keep publishing individual stock prices during the ten-minute auction window. The change is expected to aid price discovery and better synchronize derivatives trading with cash-market closures.