UPSC Prelims Practice Questions — ‘SEBI to partly reverse derivative settlement rules after pushback’

Q1. With reference to the volume-weighted average price (VWAP) of a stock computed over a fixed trading window, consider the following statements: Which of the statements given above is/are correct?

  1. The VWAP for the window always lies between the lowest and the highest prices at which trades were executed during that window.
  2. The VWAP for the window is necessarily equal to the price at which the last trade in that window was executed.
  3. Other things remaining the same, lengthening the averaging window tends to reduce the influence that any single trade has on the benchmark.
  • A. 1 and 3 only
  • B. 1 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q2. With reference to price discovery in stock exchanges, consider the following statements about a call auction (such as a closing auction session) as distinct from continuous trading: Which of the statements given above is/are correct?

  1. In continuous trading a stock may trade at several different prices within a few minutes, whereas a call auction executes all matched orders of that round at one uniform price.
  2. The price discovered in a call auction is the simple average of all the bid and ask prices entered in the order book.
  3. In a call auction, orders are matched one by one in the sequence in which they arrive, as soon as a matching counter-order is found.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 only

Q3. Consider the following statements in the context of India's equity derivatives market: Which of the following is correct in respect of the above statements?

  1. An abrupt move in a stock's price at the close on expiry day can suddenly leave a holder of an expiring stock option with an obligation to deliver shares or to pay for them.
  2. In-the-money stock options in India are settled at expiry by physical delivery of the underlying shares rather than by payment of the price difference alone.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q4. Consider the following statements regarding SEBI's expected changes to derivatives settlement after the introduction of the Closing Auction Session: Which of the following is correct in respect of the above statements?

  1. Reverting the derivatives settlement price to the last-30-minute VWAP means the closing auction will no longer determine the closing price of any stock in the cash segment.
  2. A 30-minute VWAP spreads the reference price across a larger set of trades than a short closing auction with thin participation, making it harder for a few orders to move.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q5. Consider the following pairs of financial instruments and their principal regulator in India, as of 2026: Which of the pairs given above are correctly matched?

  1. Exchange-traded equity index options — Securities and Exchange Board of India
  2. Over-the-counter interest rate swaps — Reserve Bank of India
  3. Exchange-traded agricultural commodity futures — Securities and Exchange Board of India
  4. Over-the-counter foreign exchange forward contracts — Securities and Exchange Board of India
  • A. 1 and 2 only
  • B. 1, 3 and 4 only
  • C. 1, 2 and 3 only
  • D. 2, 3 and 4 only

Q6. In a closing call auction for a stock, the auction book holds the following limit orders. Buy: 100 shares at ₹102, 200 shares at ₹101, 300 shares at ₹100. Sell: 150 shares at ₹99, 250 shares at ₹100, 300 shares at ₹101. At what price will the auction most likely discover the closing price?

  • A. ₹99
  • B. ₹100
  • C. ₹101
  • D. ₹102

Q7. During the last 30 minutes of continuous trading, a stock records two sets of trades: 900 shares at ₹100 and 100 shares at ₹110. The final trade of the day is at ₹110. If the closing price is fixed by the volume-weighted average price of this window, what will it be?

  • A. ₹105
  • B. ₹110
  • C. ₹100
  • D. ₹101

Q8. With reference to the expiry of exchange-traded equity options in India, consider the following statements: Which of the statements given above is/are correct?

  1. Whether an expiring option ends in-the-money is judged against the final settlement price of the underlying, not against the option's own last traded premium.
  2. A stock option that is out-of-the-money at the final settlement price expires without any delivery obligation for its holder.
  3. If the settlement price is taken from a closing auction, a price spike during the auction can change the outcome of expiring contracts even when the stock's continuous-session prices were stable.
  • A. 1, 2 and 3
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1 and 2 only