India's markets regulator unlikely to immediately review new stock closing auction, source says

India’s markets regulator sees no flaws in the structure or design of the new stock closing auction and is unlikely to immediately review it, a source with direct knowledge of the matter told Reuters on Wednesday.

India’s benchmark Nifty 50 index had seen sharp volatility earlier this week as a new mechanism to determine the closing prices of stocks was introduced on Monday. The change triggered wild swings in futures and options prices on Tuesday, when weekly derivative contracts expired.

“It’s too early to do any review. Participation increased on Tuesday and the Securities and Exchange Board of India expects participation to increase further,” said the source, who declined to be identified as he is not authorised to speak to the media.

He added that brokers have been urged to increase retail participation.

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SEBI did not immediately respond to an email seeking comment.

Following the rollout, options premiums swung sharply, resulting in unexpected losses for some traders and gains for others. Arbitrage funds were among the biggest beneficiaries, recording a one-day mark-to-market jump in valuations, according to exchange data.

The unexpected price swings prompted traders to say that the system was not functioning as intended and the issues needed to be addressed, Reuters reported on Tuesday.

“SEBI expects these issues to settle soon. There is no specific timeline for reviewing the system,” the source said.