SEBI Proposes Changes To Derivatives Settlement Methodology
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SEBI has proposed changes to CAS, including revised expiry-day settlement calculation, timings and order rules, to improve price discovery and reduce volatility concerns in derivatives markets.
The Securities and Exchange Board of India (SEBI) has proposed changes to the way derivative contracts are settled on expiry days. The move follows concerns over sharp price movements and uncertainty after the introduction of the Closing Auction Session (CAS).
SEBI introduced CAS for stocks with derivatives contracts on 3 August 2026. Under the new system, closing prices are determined through an auction instead of using the volume-weighted average price (VWAP) of trades during the final 30 minutes of regular trading.
The regulator has now suggested two possible approaches for calculating expiry-day settlement prices.
Under the first option, the settlement price would use a combination of trades from the final 30 minutes of the Continuous Trading Session (CTS) and the 10-minute CAS period. This would create a blended VWAP.
The second option would retain the existing VWAP approach for at least another year. The settlement price would be calculated using only trades executed during the final 30 minutes of continuous trading.
SEBI Considers Changes To CAS Timings And Orders
SEBI has also proposed changes to the trading schedule surrounding CAS.
One option would extend continuous trading for CAS stocks until 3:30 pm. The auction would then run from around 3:30 pm to 3:40 pm. Derivatives trading would continue until 3:45 pm.
Under the second option, the current 3:15 pm cut-off for continuous trading would remain. CAS would then run until 3:25 pm, with derivatives trading ending at 3:30 pm.
The regulator has also proposed reducing the transition period between continuous trading and CAS from five minutes to one minute. The post-auction derivatives trading window could also be shortened from 10 minutes to five minutes.
SEBI is considering restrictions on the cancellation of certain limit orders during CAS. Orders placed more than 1% away from the reference price could still be entered within the existing ±3% price band. However, once such orders move beyond the 1% threshold, traders would only be able to improve the price rather than cancel the order.
Indicative Values And Iceberg Orders
SEBI has proposed stopping the publication of the indicative index value during CAS. The regulator believes this figure could be mistaken for an actual index level even when no trades have taken place at that price.
Indicative equilibrium prices for individual securities would continue to be disclosed.
The regulator has also proposed allowing the unexecuted portion of iceberg orders to enter CAS as normal limit orders. The full pending quantity would be visible in the auction order book.
The changes are intended to ensure that genuine trading interest at the end of regular trading contributes to price discovery.
SEBI has invited public comments on the seven proposals until 3 October. The regulator's latest proposals indicate that it is refining CAS rather than abandoning the system.
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Vishwa has spent 10+ years across fintech and FMCG doing what most people miss, connecting the dots, catching trends before they trend, and finding the angle nobody else thought to ask about.
At Kotak Neo, she drives content strategy for neoshorts, Kotak News Desk, and Investing Guide, turning market noise into something worth reading.
When she's not decoding markets, she trades charts for canvases, chasing art, painting, and architecture across cities she's yet to explore.
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