India Market Regulator Reinstates Earlier Settlement System to Boost Derivatives Trading
India's capital markets watchdog has decided to return to using a 30-minute average calculation window during regular market hours to determine final prices for expiring derivative products starting Dec. 7. The policy shift replaces a closing auction framework introduced on Aug. 3 that caused severe price fluctuations and led traders to pull back from the market.
Following the August adoption of the auction system, overall derivative trading activity on National Stock Exchange of India Limited (BSE:NSE) shrank by 19.2% from the prior month, dropping to 34.48 trillion rupees ($363.37 billion). The decline was compounded by stricter lending restrictions for proprietary market participants alongside elevated transaction levies. Reverting to the previous benchmark calculation is intended to soothe contract expiration day turbulence and restore market participation.
Under the updated schedule, index derivative trading will run until 3:45 p.m. IST on standard trading sessions, but will wrap up at 3:30 p.m. IST on contract expiration dates. Following the regulatory announcement, shares of National Stock Exchange of India Limited slipped 1.38% to 1,749 INR.
Key points
- Beginning Dec. 7, derivative final pricing on expiration days will rely on a 30-minute trading average calculation.
- Derivatives volume at National Stock Exchange of India Limited dropped 19.2% to 34.48 trillion rupees in August after new auction rules took effect.
- The regulatory rollback seeks to tame expiration-day price swings and bring traders back to the derivatives market.
- Regular index derivative trading will run until 3:45 p.m. IST, while expiration session trading will conclude at 3:30 p.m. IST.
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How we writeDisclaimerQuestions and answers
How will Indian derivative contract settlements be calculated starting December 7?
From December 7 onward, expiry day final prices for derivative contracts will be established using an average price calculation based on the final 30 minutes of standard trading hours.
Why is India changing its derivatives expiry calculation method?
The regulator is restoring its previous calculation system to reduce price turbulence on contract expiration days and help revive trading activity after turnover dropped in August.
What will be the trading hours for index derivatives under the new rules?
Index derivative trading will extend until 3:45 p.m. IST on typical days, but will close earlier at 3:30 p.m. IST when contracts expire.