India Index-Options Trading Volumes Drop 27% After Auction Change

Trading volumes for index options in India declined by 27% during the first week of a new closing auction mechanism introduced on August 3. Average traded volumes for the August 4 and August 11 expiries fell to 268 million contracts, down from a July average of 369 million contracts across weekly expiries.

Securities and Exchange Board of India implemented the market-structure overhaul, which caused sharp price swings during the initial days of the auction. This volatility affected the official closing prices used for passive portfolios and derivatives settlement, prompting proprietary trading firms and high-frequency traders to reduce activity or avoid the auction entirely.

The slump follows a broader cooling trend in the Indian derivatives market. Notional volumes hit a 17-month low in July after the Reserve Bank of India implemented restrictions on funding for stock brokers and proprietary traders to curb excessive speculation.