The Securities and Exchange Board of India (SEBI) recently unveiled a revised approach to the settlement of equity futures and options at expiry. The change concerns the method used to calculate the closing price that determines the settlement value for contracts that expire at the end of the trading day. The method has a direct influence on the daily price swings that traders and retail investors experience. Under the current regime, the volume‑weighted average price (VWAP) of the last 30 minutes of continuous trading is used to set the settlement price.
SEBI has decided to retain this VWAP methodology for the next 12 months. After that period, the regulator plans to shift to a blended approach that incorporates both the VWAP and the closing auction price. The blended method is expected to reduce the impact of large single‑trade movements that can cause sudden price jumps. The move comes amid criticism that the closing auction has been a source of volatility for index futures, especially on days with large corporate announcements.
By keeping the VWAP rule for a year, SEBI aims to give market participants time to adjust and to study the effects of a blended settlement. Retail investors who hold exposure to Nifty or Sensex derivatives should monitor the settlement changes, as they can affect the basis of their positions and the likelihood of margin calls during volatile periods. Overall, the proposal signals SEBI’s intent to balance market stability with the need for a fair, transparent pricing mechanism. The gradual transition should provide a smoother adjustment for traders and a clearer expectation for retail investors navigating the futures market.