Sebi proposes changes to expiry settlement as closing auction faces pushback

The Securities and Exchange Board of India (Sebi) has proposed a phased approach to changing the settlement mechanism for stock market trades. The market regulator initially plans to keep the current Volume Weighted Average Price (VWAP) method. However, it suggests that settlement should be based only on trades executed during the final 30 minutes of continuous trading. This is intended to reduce volatility. The regulator has also indicated that it may later consider a blended approach, which combines the closing auction price with the VWAP, but only after at least a year of observation.

This change is significant for investors as it aims to improve price discovery and reduce the risk of manipulation during the closing minutes of trading. A more stable settlement process can lead to greater market confidence. For retail investors, understanding this shift is important as it affects how stock prices are determined at the end of the trading day. The move is part of a broader effort to make the Indian market more robust and transparent.

Investors should watch for the final regulatory circular and the timeline for implementation. The market will closely monitor the impact of the proposed 30-minute settlement window on liquidity and price stability. It remains to be seen if the blended approach will be adopted in the future, but the current proposal suggests a cautious step towards a more refined settlement system.