Sebi unveils proposals to overhaul derivatives settlement and trading mechanics

The Securities and Exchange Board of India (Sebi) has put forward a comprehensive set of recommendations aimed at enhancing the efficiency and transparency of the derivatives market. The proposals, currently open for stakeholder feedback, address critical operational aspects of equity derivatives trading on Indian exchanges.

Under the settlement proposals, Sebi has floated two distinct expiry-day methodologies that would alter how positions are settled when derivative contracts reach maturity. These alternatives are designed to provide flexibility to market participants and exchanges while maintaining robust risk management protocols. Simultaneously, the regulator has suggested two alternative approaches for adjusting market timings, which could impact trading hours and the closing auction window for derivatives contracts.

Additional modifications focus on order management during the Closing Auction Session (CAS). Sebi's proposals include revised rules governing order cancellations and the handling of Iceberg orders—large orders partially hidden from the market—during this critical trading phase. These changes are intended to prevent market manipulation and ensure orderly price discovery at contract expiry.

The proposals represent Sebi's ongoing effort to align Indian derivatives markets with global best practices while maintaining domestic market integrity. Market participants, including brokers, exchanges, and institutional investors, are expected to submit their comments on the proposals, which will inform the regulator's final decision on implementation timelines and specifications.