Closing Auction Session Stays As SEBI Looks To Address Liquidity And Expiry-Day Swings

The closing auction session (CAS) will remain part of India's market structure, Chairman of the Securities and Exchange Board of India (SEBI) Tuhin Kanta Pandey said on 10 September 2026.

The regulator, however, is reconsidering how derivative contracts should be settled on expiry days after market participants raised concerns over liquidity and sharp swings in headline indices.

CAS Faces Liquidity Concerns As Participation Remains Low

The CAS was introduced on 3 August 2026 and has seen thin liquidity and low participation during the final 15 minutes of trading.

The regulator has been monitoring its functioning and has consulted stock exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations and foreign portfolio investors.

Under CAS, continuous trading sessions (CTS) for eligible cash stocks ends at 3:15 pm. But derivatives trading in the 213 eligible stocks continues until 3:40 pm. The auction order-entry window runs from 3:20 pm to 3:30 pm, with closing prices determined between 3:28 pm and 3:30 pm based on the bids and offers that allow the maximum trading volume.

The liquidity issue has also been accompanied by sharp price movements. On 3 September 2026, the BSE Sensex fell by around 2,100 points during the first five minutes of the auction before recovering some of the decline. It eventually ended the session 417 points lower at 76,152.86.

SEBI To Rework Derivatives Settlement Price Methodology

SEBI is reviewing whether the derivatives settlement price should continue to depend entirely on the CAS closing price on expiry days. The review follows feedback on the impact of the mechanism on expiry-day trading and liquidity.

Before CAS, stock and index derivatives were settled using the volume-weighted average price (VWAP) calculated over the final 30 minutes of trading. Weekly and monthly derivatives on the National Stock Exchange (NSE) are settled on Tuesdays, while Bombay Stock Exchange (BSE) contracts are settled on Thursdays.

SEBI had said on 3 September 2026 that it would issue a consultation paper on the settlement methodology. One possibility is a return to the earlier VWAP approach or a combination of VWAP and CAS prices.

SEBI Chairman said the technical implementation of CAS has worked well, including during the recent Morgan Stanley Capital International (MSCI) rebalancing. The concern is more specific to the way derivative settlement prices are currently linked to the auction outcome.

CAS Liquidity May Improve As Markets Adjust To The New System

SEBI's defence of the CAS liquidity framework is partly based on the experience of other markets. The Chairman said participants had pointed to the US, Japan and Hong Kong, where closing auctions also faced liquidity constraints when first introduced. Liquidity subsequently improved as market participants adapted to the mechanism.

SEBI is therefore not considering a rollback of the closing auction session. Instead, the regulator is studying the constraints and the experience of other jurisdictions while considering changes to the derivatives settlement framework.

Separately, the chairman of SEBI outlined plans to expand the use of artificial intelligence (AI) in market supervision. SEBI is working to implement an AI supervisory toolkit developed by the International Organisation of Securities Commissions (IOSCO). The aim is to identify risks earlier and move towards more proactive, near-real-time and off-site supervision.

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