SEBI Proposes Changes To Derivatives Settlement After CAS Volatility; Check What May Change

The Securities and Exchange Board of India (SEBI) has proposed changes to the way expiry-day settlement prices for index and single-stock derivatives are calculated, weeks after the new Closing Auction Session (CAS) framework triggered concerns over sharp market movements.

In a consultation paper issued on September 12, the markets regulator proposed two possible approaches for determining derivatives settlement prices. It is also looking for feedback on CAS timings, derivatives trading hours, order handling and the dissemination of market information. Public comments on the proposals can be submitted until October 3rd 2026.

Recently, SEBI reviewed the behaviour of benchmark index options around expiry before and after the introduction of CAS. The regulator has made it clear that it is not proposing to scrap CAS. Instead, the exercise is to refine the framework and address concerns around the interaction between the cash-market closing price and derivatives settlement.

What Is The Closing Auction Session?

The Closing Auction Session is a mechanism introduced by SEBI for determining the closing price of eligible stocks in the equity cash market.

The CAS framework came into effect on August 3rd this year. Before that, the closing price of eligible stocks was generally determined using the volume-weighted average price of trades executed during the last 30 minutes of continuous trading.

Under CAS, buy and sell orders are brought together in an auction to determine an equilibrium closing price. The closing price determined through the auction also became relevant for calculating settlement prices of derivative contracts on expiry.

SEBI had previously consulted market participants on the introduction of CAS in December 2024 and again in August 2025 before introducing the framework.

Reason Behind SEBI Reviewing The Derivatives Settlement Method?

SEBI compared premiums on expiring benchmark index options during the period from February to July 2026, before CAS, with the period from August 3 to September 3, 2026, after CAS was introduced. The comparison covered 26 expiries before CAS and five expiries after CAS.

There were episodes of extreme volatility in which indicative closing levels moved sharply during the auction period which led SEBI to take this review.

A recent session saw the indicative close for the Sensex briefly fall around 2.5%, while premiums on some put options surged by several hundred per cent. Nifty put options also recorded multi-fold increases on an expiry day.

Such movements have raised concerns among traders and market participants about the relationship between the cash-market closing price and the settlement value used for derivatives.

SEBI Proposes Two Options For Expiry-Day Settlement

In the consultation paper SEBI has proposed two possible methods for calculating the settlement price of index and single-stock derivatives on expiry days.

The first option is a Blended VWAP methodology where the settlement price would take into account trades executed during the last 30 minutes of the Continuous Trading Session as well as trades conducted during the 10-minute Closing Auction Session.

The second option would retain the existing settlement methodology based on the final 30 minutes of continuous trading, effectively separating derivatives settlement from CAS for an interim period.

Reuters reported that SEBI is considering this approach for one year before potentially moving towards the blended methodology after gaining more experience with CAS.