SEBI has reversed its plan to link futures and options (F&O) expiry settlement prices to the closing auction session (CAS) and has restored the volume-weighted average price (VWAP) method, according to a circular dated 15 October 2026. The main changes take effect on 7 December 2026.
The circular responds to a consultation paper dated 12 September. SEBI’s original CAS circular was issued on 16 January 2026, with CAS scheduled to begin on 3 August 2026, per Outlook Money’s report published on 16 October.
How Will F&O Expiry Settlement Work Now?
For index derivatives, settlement will be based on the index value calculated from constituents’ VWAP over the final 30 minutes of continuous trading. For stock derivatives, clearing corporations will use the underlying stock’s VWAP over the final 30 minutes of the cash session across all exchanges. Exchanges must publish indicative index values and stock VWAPs in real time during that window.
What Are the Closing Auction Session Rules?
The CAS will run from 3:30 PM to 3:40 PM on all trading days. Market and limit orders are accepted from 3:31 PM to 3:36 PM, then only limit orders, and order entry closes at a random time between 3:38 PM and 3:40 PM. The CAS reference price is the VWAP of trades in the final 15 minutes of continuous trading, falling back to the last traded price and then the previous close if the stock did not trade.
Index derivatives will trade until 3:45 PM on regular days, with expiring index contracts stopping at 3:30 PM on expiry days. Stock derivatives trade until 3:45 PM every day, including expiry. A post-close cash session will run from 3:50 PM to 4:00 PM at closing prices.
What Happens to Unexecuted and Iceberg Orders?
Eligible unexecuted limit orders move into CAS, except stop-loss orders and orders outside CAS price bands. Iceberg orders are converted into fully disclosed limit orders when carried forward unless the participant opted out at placement. The unexecuted-order transition rules take effect on 8 February 2027.
Market and Trade Reaction
Outlook Money says the reversal followed strong industry pushback, consultation feedback, recommendations from the Secondary Market Advisory Committee and talks with stock exchanges. No exchange or broker statement was found in the sources reviewed.
What Happens Next?
Exchanges and clearing corporations must amend their standard operating procedures within seven days, in consultation with SEBI. Traders should track exchange circulars ahead of the 7 December 2026 start date.
Frequently Asked Questions
What did SEBI change about F&O expiry settlement?
SEBI dropped the CAS-linked settlement price and restored the VWAP method based on the final 30 minutes of trading.
When do the new rules apply?
Main changes take effect on 7 December 2026, and unexecuted-order transition rules apply from 8 February 2027.
Why did SEBI reverse its decision?
SEBI cited efficient price discovery and orderly functioning, following industry pushback and advisory committee input.
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