Now Reading: Sebi’s new closing auction hits F&O volumes, arbitrage funds
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Sebi’s new closing auction hits F&O volumes, arbitrage funds
Sebi’s new closing auction mechanism for 208 derivatives stocks has caused a sharp drop in futures and options volumes. Average weekly index futures volumes on Nifty and Bank Nifty fell 40% to…
The Story in Brief
Sebi’s new closing auction mechanism for 208 derivatives stocks has caused a sharp drop in futures and options volumes. Average weekly index futures volumes on Nifty and Bank Nifty fell 40% to 69,982 contracts in the week to 7 August, from 134,754 contracts in the prior week. Weekly index options volumes also dipped, with call option purchases declining 16% on 4 August. Market participants say uncertainty over closing prices has kept retail and arbitrage funds away. Only passive funds and high-frequency traders are active so far. The annualised return of Kotak Arbitrage Fund slipped to 7% on the first day of the new system, from 7.75% for its benchmark.
The Indian Opinion
Sebi’s closing auction reform is a textbook fix, but markets abhor a vacuum. The sharp drop in futures volumes and arbitrage returns shows that even well-intended rules can misfire if transition is abrupt. The regulator must watch the spread between cash and futures closely: if the gap widens persistently, it signals deeper liquidity damage. The real test is not day-one volatility, but whether volumes normalise in a month. If not, the cure may need a tweak.
Source: livemint.com
This story was synthesised by AI from the source linked above.
