What SEBI’s CAS Reforms Could Mean for F&O Traders

The Securities and Exchange Board of India (SEBI) has proposed changes to the Closing Auction Session (CAS) as option activity and orders declined sharply following its introduction. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) index options average daily traded turnover declined 17% and 26%, respectively, in August from July, while option orders fell 30%. For F&O traders, the proposed changes could directly affect expiry-day settlement, position management and the reliability of closing prices.

CAS was introduced to determine closing prices through an auction rather than the earlier 30-minute Volume-Weighted Average Price (VWAP) method. However, the new system led to concerns over sharp price moves near expiry and differences in closing prices. SEBI is now considering two alternatives for calculating derivatives settlement prices.

What Does This Mean For F&O Traders?

The proposed SEBI F&O settlement changes are likely to be the most important part of the consultation for derivatives traders.

One proposal combines trades from the final 30 minutes of continuous trading with the 10-minute CAS, using traded turnover to arrive at a blended VWAP. This would give greater weight to actual trading activity across a wider period instead of relying only on the auction price.

The second option would temporarily bring back the earlier 30-minute continuous-session VWAP method for at least one year. SEBI could then shift to the blended approach once the auction system has matured.

For traders holding positions through expiry, both approaches could make settlement prices less sensitive to sudden moves during the final minutes and reduce unexpected changes in the value of positions.

SEBI is also considering removing the Indicative Index Value during CAS. The regulator said traders have been treating these changing figures as actual index levels and taking derivative positions based on them. The proposal would keep individual stock-level Indicative Equilibrium Prices available while removing the index-level figure. This could reduce the risk of traders acting on an indicative index level that does not represent an actual traded price.

What Changes Could F&O Traders See?

The proposals also cover the trading window and orders placed during CAS:

• The five-minute gap between continuous trading and the auction could fall to one minute, reducing the transition period for traders.

• Limit orders placed more than 1% away from the reference price could become non-cancellable, although traders would still be able to improve the price.

• Unexecuted iceberg orders could move into CAS as regular limit orders, with the full pending quantity visible. This would make previously hidden pending quantity visible in the auction order book.

Overall, the biggest change for F&O traders is likely to be expiry-day pricing. By changing how the final settlement price is calculated, SEBI is seeking to reduce the influence of sharp end-of-day moves while improving price discovery.

Also Read - Government PSU Stake Sales Of ₹6.6 Lakh Crore May Ease FPI Selling