The Securities and Exchange Board of India (SEBI) has completed its review of the recently introduced closing auction session for derivatives and is now proposing a suite of five changes to how settlement prices are determined on expiry days. The move comes after concerns that the existing methodology sometimes produced erratic price spikes, unsettling both institutional and retail participants in the futures and options market. Among the suggested reforms, SEBI plans to shift from a single‑point closing price to a volume‑weighted average price (VWAP) calculated over the final 30 minutes of trading.
It also intends to incorporate a broader pool of order book data, tighten the eligibility criteria for the auction, and introduce a cap on price deviation from the underlying index. A final tweak would require real‑time disclosure of the auction’s reference price, giving market players clearer visibility before contracts are settled. If implemented, these measures could smooth out abrupt swings in Nifty and Sensex futures on expiry, reducing the risk of sudden margin calls for retail traders who often hold positions overnight.
However, tighter pricing rules may also compress spreads, meaning investors might need to adjust entry and exit strategies to maintain profitability. SEBI expects to roll out the new framework by the next quarter, subject to stakeholder feedback. Retail investors are advised to stay informed about the changes, review their risk management practices, and consider consulting a financial advisor before the next expiry cycle.