India markets regulator partly reverses derivative settlement rules after pushback

MUMBAI, Oct 15 (Reuters) - India's markets regulator said on Thursday it would use volume-weighted average prices (VWAP) from the final 30 minutes of regular trading to settle expiring stock and index derivatives contracts, reversing its decision to use closing auction prices.

The closing auction session (CAS) will continue to determine the closing prices of applicable cash-equity securities, the Securities and Exchange Board of India (SEBI) said ⁠in a circular.

CAS, implemented by SEBI from August 3, had triggered a backlash from traders after sharp swings in stock and index levels during the close. Erratic movements in the expiring derivatives contracts propelled traders to pull back on volumes.

Reuters reported last week that SEBI was considering reverting to 30-minute VWAP-based settlements for expiring derivatives contracts.

The changes will be effective from December 7.

CAS will operate as a separate 10-minute session from 3:30 p.m. ⁠to 3:40 p.m. on all trading days. Order entry will close randomly between 3:38 p.m. and 3:40 p.m.

Traders can enter both limit and market orders from 3:31 p.m. to 3:36 p.m., after which they may place only limit orders.

A ⁠market order is executed immediately at the best available price, while a limit order is executed only at the investor's specified price or better.

Expiring index derivatives will ⁠cease trading at 3:30 p.m. on expiry days. Stock derivatives will continue to trade until 3:45 p.m. on all trading days, including ⁠expiry days.

The cash-market post-close session will run from 3:50 p.m. to 4 p.m., with trades executed at the closing price.

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Reporting by Jayshree P Upadhyay, Bharath Rajeswaran and Vivek Kumar M; Editing by Joyjeet Das