SEBI Reverts Derivative Pricing to Stabilize Indian Markets

The Securities and Exchange Board of India reversed a pricing mechanism for equity-derivative settlements on Thursday to stabilize a volatile market. Under the restored rules, derivative settlements on expiration days will again use the volume-weighted average prices of underlying stocks during the final 30 minutes of continuous trading.

This regulatory shift undoes a feature of the closing auction session that was introduced on August 3. Market participants reported that the August mechanism caused extreme price swings and trading chaos, which hindered recent activity in the equity-derivatives market.

Regulators expect the return to the previous pricing model to support a nascent recovery by reducing the confusion that has plagued the market since the August changes.