Nifty Index Drops 2.2% Amid F&O Expiry Volatility on September 29
The Nifty 50 index experienced significant fluctuations, briefly falling 2.2% during the monthly derivatives expiry.
Nifty hit a low of 22,267 before recovering slightly during the trading session.
Bank Nifty fell sharply, losing over 1,100 points, closing at 54,259.95.
SEBI is considering changes to the derivatives settlement process to mitigate volatility.
On September 29, the Nifty 50 index witnessed a dramatic drop of 2.2% during the closing auction session, attributed to the monthly expiry of derivatives contracts. The index reached a low of 22,267 before making a slight recovery, while the Bank Nifty also faced significant losses, sliding below the 53,300 mark.
This volatility comes as part of the regular market dynamics associated with the expiry of futures and options contracts. The introduction of the CAS framework on August 3 aimed to enhance price discovery but has led to increased price swings on expiry days. Traders reported sharp fluctuations, with some sharing screenshots of the rapid decline on social media.
The Nifty 50 ultimately closed down 0.28% at 22,716.2, and the BSE Sensex fell by 0.33% to 72,529.07. In response to the observed volatility, the Securities and Exchange Board of India (SEBI) has proposed two options for calculating the settlement price on expiry days, which could help stabilize the market.
Market analysts noted that the Nifty's decline to its 200-week moving average is significant, marking the first such occurrence since the COVID-19 market crash. A decisive break below this level could lead to further corrections, while maintaining above it could allow for a potential recovery. The immediate resistance level is identified at 22,800.
Looking ahead, the deadline for submitting feedback on SEBI's consultation paper is October 3, with expectations for changes to be implemented by October or November. Analysts suggest that a return to a volume-weighted average price (VWAP) for derivatives settlement could help reduce volatility and restore some trading activity that has diminished since the CAS framework's introduction.
