Derivative traders and institutional funds in India face unexpected stock delivery obligations on monthly option expiries due to the newly introduced closing auction session.
The mechanism determines final settlement prices only after the regular trading window closes, creating a narrow window where late-session volatility can abruptly shift options from out-of-the-money to in-the-money status.
Traders often remain unaware of these delivery obligations until the settlement process is complete, according to market experts.
This structural change introduces operational risk for participants who rely on end-of-day price levels to manage their option positions, particularly those with short option exposures that may require physical settlement.
The closing auction mechanism is part of a broader structural overhaul of India's equity markets, which began on August 3.
The changes are expected to reshape end-of-day trading dynamics and could pressure brokerage revenues as trading patterns adjust to the new settlement framework.