Sebi Chief Indicates Potential Adjustments to F&O Settlement Price Mechanism
MUMBAI: The Securities and Exchange Board of India (Sebi) chairman Tuhin Kanta Pandey confirmed on Thursday that the newly introduced Closing Auction Session (CAS) will remain in place. However, the regulator is evaluating potential changes to the mechanism used for determining derivatives settlement prices. Pandey noted that MSCI, a leading global index service provider, reported no issues during the CAS coinciding with its index rebalancing on August 31.
CAS, implemented on August 3, has faced criticism for causing significant market volatility, including notable price discrepancies between the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). On Thursday, as weekly derivatives contracts for the Sensex were set to expire, the index experienced fluctuations exceeding 1,000 points. Similar volatility was observed on August 27, coinciding with the expiration of both weekly and monthly contracts.
Despite initial resistance to modifying the CAS system, Sebi announced last week that it would review the current framework and release a consultation paper soon. Currently, CAS is applicable only to stocks traded in the futures and options segments, while other stocks continue to use the volume-weighted average price (V-WAP) method. Pandey acknowledged that the rollout of CAS in developed markets has encountered challenges, including liquidity issues, but noted that some market participants have expressed support for the new system.
During a speech at the Global Fintech Festival, Pandey addressed the regulatory challenges posed by advancements in technology, such as AI and quantum computing. He emphasized the need for regulators to ensure that innovation can scale without proportionately increasing risk. Pandey highlighted the potential of supervisory technology (SupTech) to enhance regulatory oversight, aiming to make supervision more predictive and capable of identifying emerging risks through advanced data analytics and AI.
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