The Securities and Exchange Board of India has proposed a significant overhaul of the Closing Auction Session (CAS) and derivatives expiry-day settlement methodology, aiming to curb the sharp price volatility that has repeatedly surfaced on options and futures expiry days since the mechanism was introduced. SEBI has invited public feedback on the proposed changes until October 3, 2026.
The Closing Auction Session was introduced for derivatives segment stocks from August 3, 2026, but has drawn criticism from market participants over volatility in the final minutes of trading. Under the new proposal, SEBI has offered two alternative methods for calculating expiry settlement prices: a blended volume-weighted average price combining the final 30 minutes of continuous trading with the 10-minute closing auction session, or alternatively using only the VWAP from the last 30 minutes of continuous trading as an interim measure.
What Specific Changes Is SEBI Proposing to the Closing Auction Session?
Beyond the settlement price methodology, SEBI has proposed reducing the gap between continuous trading and the closing auction session from five minutes to nearly one minute, and cutting the post-auction derivatives trading window from ten minutes to five minutes. The regulator has also proposed removing the indicative index value that is currently generated from indicative equilibrium prices during the closing auction, changes collectively intended to tighten the mechanism and reduce opportunities for manipulative price setting around expiry.
What Do Market Participants and Analysts Say?
Brokerages and exchanges, including entities such as BSE, Groww, Angel One and Motilal Oswal, have been closely tracking the proposal given its direct implications for expiry-day trading operations and systems. Analysts have broadly welcomed SEBI’s willingness to revisit the closing auction framework so soon after its August 2026 introduction, viewing it as a sign of active regulatory responsiveness, though some market participants have cautioned that frequent changes to settlement mechanics can create short-term operational adjustment costs for trading desks and retail investors alike.
Market and Trade Reaction
Shares of exchange-linked and brokerage companies saw increased scrutiny following the announcement, given that any change to expiry-day settlement mechanics directly affects trading volumes and derivatives market activity. The proposal lands amid a broader wave of market infrastructure changes in India this year, including the RBI-SEBI tokenised bond settlement pilot, suggesting regulators are actively reshaping both trading and settlement systems in tandem.
What Happens Next?
SEBI will collect public feedback on the proposed Closing Auction Session and settlement changes until October 3, 2026, after which it is expected to finalise the framework based on industry input. Market participants, particularly exchanges and derivatives brokers, will need to update their systems and educate clients on any revised settlement methodology before the changes take effect, with further regulatory circulars likely once the consultation period closes.
Frequently Asked Questions
What is SEBI’s proposed change to the Closing Auction Session?
SEBI has proposed two alternative methods for calculating derivatives expiry settlement prices, along with a shorter gap between continuous trading and the auction and a reduced post-auction trading window, to curb expiry-day volatility.
When was the Closing Auction Session introduced?
SEBI introduced the Closing Auction Session for derivatives segment stocks from August 3, 2026, and is now proposing revisions after observing volatility concerns in its initial months of operation.
Until when can the public comment on SEBI’s proposal?
SEBI has invited public feedback on the proposed Closing Auction Session and settlement changes until October 3, 2026.
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