BSE and Groww Shares Rise as Sebi Panel Supports VWAP for Derivatives

Shares of major Indian stock exchanges and brokerage firms saw a significant uptick in trading following reports that a Securities and Exchange Board of India (Sebi) committee has recommended adopting the volume-weighted average price (VWAP) method for settling derivative contracts. This development comes after Sebi received over 20,000 responses to its consultation paper concerning the closing auction session (CAS), which was introduced for stocks with derivative contracts starting August 3.

The VWAP concept calculates an average price for a security by factoring in both the volume and price of trades throughout the trading day. It is seen as a fairer reflection of the market price than some other pricing mechanisms.

By 2:30 PM, shares of Bombay Stock Exchange Ltd (BSE), Groww, and Angel One had surged by more than 3 percent, trading at ₹3,445, ₹200, and ₹315 respectively. Motilal Oswal Financial Services also advanced 2.5 percent to ₹1,065.65, while Anand Rathi Wealth climbed 1.2 percent to ₹2,138. The newly listed National Stock Exchange of India (NSE) shares edged higher by 0.3 percent, reaching ₹1,768.

The market’s positive response follows feedback from traders and participants who had urged Sebi to retain the last 30-minute continuous trading session (CTS) volume-weighted average price method instead of moving to a blended framework. The CAS mechanism had previously led to a noticeable drop in trading volumes within futures and options (F&O) segments.

Chandan Taparia, Head of Derivatives and Technical Research at Motilal Oswal Financial Services, highlighted that the Sebi panel’s recommendation resulted from a thorough review of market feedback and represents a constructive step for the derivatives and overall capital market. He explained that the decision has been welcomed by participants and has helped improve investor sentiment, reflected in gains across capital market stocks.

According to Taparia, the last two months saw heightened volatility in the final trading hour due to the CAS implementation, accompanied by reduced liquidity. Derivatives trading volumes, especially on contract expiry days, declined as well. The earlier CAS format made it challenging for traders to write options and maintain positions until market close because index prices could swing by roughly 1 percent.

With the endorsement of the VWAP method, Taparia expects trading activity to recover, as it should allow smoother price discovery and restore confidence among traders. "Trading volumes will likely pick up again," he said.

The move by Sebi is significant within the broader context of India's derivatives market, which plays a crucial role in price discovery, risk management, and liquidity. Adjustments to trading mechanisms like CAS and settlement methods can have wide-ranging effects on market behavior and participation.

Market regulators worldwide often refine such mechanisms to strike a balance between transparency, efficiency, and stability. In India, where derivatives markets have expanded rapidly, ensuring that settlement practices align with market realities is critical to supporting sustained growth and investor trust.

It remains to be seen how this recommendation will be implemented and whether it will lead to long-term improvements in trading volumes and market quality. Nevertheless, the initial market reaction to the Sebi panel's support for the VWAP method suggests optimism among investors and traders.

Disclaimer: The views expressed in this article reflect opinions from the cited brokerage analysts and do not represent the official stance of Business Standard. Readers should exercise their own judgment when making investment decisions.