Sebi is set to adopt a blended pricing framework to address expiry-day volatility in derivatives trading, according to livemint.com. The move aims to stabilize prices on settlement days by adjusting how closing prices are determined, following concerns about skewed options prices during expiry sessions.
Currently, continuous trading in cash and derivatives on NSE runs from 9:15 a.m. to 3:30 p.m., with closing prices based on the last 30 minutes of trading. On expiry days, volumes on the closing auction session (CAS) drop to ₹1,000-1,200 crore, about a fifth of the earlier continuous session volumes, said Shai Coelho, founder of Pune-based analytics firm Vtrender. This volume drop can distort options pricing, which the blended pricing mechanism seeks to correct.
The proposed blended pricing framework is designed to smooth price convergence between derivatives and spot markets on expiry days, reducing volatility that can impact traders and market stability. This adjustment follows observations of significant price swings during expiry sessions, which have raised concerns among market participants and regulators alike.
The last 30 minutes of trading currently determine closing prices, but the new framework will incorporate a blend of prices to better reflect market conditions on expiry days. Sebi’s move follows market data and expert input, including from Vtrender, highlighting the need for improved price discovery mechanisms in derivatives trading.