SEBI Proposes Radical Overhaul of Auction System Amid Volatility Fears

Sharp price swings and liquidity concerns have prompted India's markets regulator to propose sweeping changes to the closing auction system. The Securities and Exchange Board of India has released a discussion paper outlining a range of adjustments, including a possible return to the previous method for settling derivatives on expiry days. The regulator is considering cutting the auction window to 10 minutes from the current 20 minutes, and starting the auction after the close of regular trading at 3:30 p.m. in Mumbai. This move would allow trading to conclude just five minutes after the close of the auction. The plan also includes two methods for calculating expiry settlement prices, with one option allowing the previous method of using only the volume-weighted average price of the final 30-minute of continuous-trading. Tejas Shah, head of equity derivatives at Equirus Securities Pvt., has welcomed the regulator's move, stating that it gives market participants an opportunity to understand the nuances and implications of both approaches. The regulator has sought public comments on its proposals by October 3, with the goal of making any final revisions to the unpopular auction system.