Global brokerage Jefferies has indicated that the Securities and Exchange Board of India's (SEBI) recent proposals regarding the Closing Auction Session (CAS) are set to address significant concerns raised by options traders. These regulatory adjustments are expected to reduce market uncertainty for both brokers and exchanges.
Key SEBI Proposals
According to Jefferies, SEBI's proposed changes include:
- Settlement Price Adjustment: Modifying the settlement price for derivatives to the Volume Weighted Average Price (VWAP) or a blend of VWAP and CAS.
- Limit Order Cancellation: Discontinuing the cancellation of limit orders placed beyond a +/- 1% threshold of the reference price during CAS.
- Liquidity Enhancement: Allowing unexecuted iceberg orders to transition into the CAS, which could boost liquidity during the auction session.
These measures are designed to mitigate volatility and stabilize settlement prices on expiry days, which had been a major point of contention since CAS was introduced in August 2026.
Market Impact and Timeline
Initial feedback from domestic proprietary traders indicated that the introduction of CAS led to higher losses due to increased volatility in index prices during the final hour on expiry days. This resulted in a notable decline in index options average daily turnover (ADTO) on NSE and BSE by 17% and 26% respectively in August compared to July, with option orders falling by 30%.
However, trading activity showed signs of improvement in September, with options ADTO and orders traded per day down by only 4% and 9% respectively compared to July figures. The deadline for responses to SEBI's consultation paper is October 3, 2026, with implementation of the proposed changes anticipated later in October or November.
Jefferies' Ratings: BSE and Groww
Cautious Stance on BSE
Despite the proposed regulatory improvements, Jefferies has maintained an 'Underperform' rating on BSE, setting a target price of Rs 2,940. The brokerage's cautious outlook stems from:
- Limited growth observed in the overall options industry over the past two years.
- A belief that BSE's market-share gains may be nearing a ceiling, as expiry-day Sensex and Nifty ADTOs are now comparable.
- Potential adverse effects from tighter Reserve Bank of India (RBI) norms on bank guarantees, which could reduce premium turnover by up to 10% over the next year.
- The possibility of a management transition at BSE by June 2027.
Positive Outlook for Groww
Conversely, Jefferies has reiterated a 'BUY' rating on Billionbrains Garage Ventures (Groww), with a target price of Rs 240. The firm expects Groww to benefit significantly from the resolution of CAS-related issues, given that futures and options (F&O) contribute approximately 55% of its revenue.
Jefferies projects Groww's broking business to achieve 18% growth, driven by client vintage and ongoing market-share gains. New initiatives, such as a margin trading facility and wealth management services, are also identified as additional growth drivers. Furthermore, Groww's plans to introduce US stocks later in FY27 are estimated to contribute 5-9% to its FY28 earnings.
Disclaimer: This article provides general market information and should not be considered investment advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.