SEBI proposes changes to CAS, derivatives settlement methodology

Consultation paper seeks views on expiry-day settlement prices, market timings, order handling and information dissemination

The Securities and Exchange Board of India (SEBI) has proposed a review of the Closing Auction Session (CAS), market timings and settlement methodology for derivatives contracts following the initial experience with the new closing price discovery mechanism.

CAS was introduced in the equity cash segment for stocks with available derivatives contracts from 3 August 2026. Before CAS, the closing price was determined using the volume-weighted average price (VWAP) of trades executed during the last 30 minutes of the Continuous Trading Session (CTS).

Under CAS, the closing price is determined through an equilibrium price discovery mechanism based on the aggregate buy and sell orders in the order book during the auction.

 

SEBI said feedback from stock exchanges, trading members, broker associations, institutional investors and other market participants has highlighted the need to review certain aspects of CAS and the settlement methodology for derivatives.

The review is particularly relevant on expiry days. Derivatives trading continues while underlying securities undergo the CAS price determination process. Trading activity in derivatives can remain significant around the close, while market participants may respond to evolving prices of the underlying securities during CAS.

SEBI has proposed a review of the methodology for determining settlement prices of derivatives. This includes examining the relative timing and duration of CTS, CAS and derivatives trading.

The regulator is also seeking views on certain operational aspects of CAS and information dissemination.

A key part of the consultation is to provide greater clarity on the distinction between the Indicative Equilibrium Price (IEP), the final closing price and the settlement price of derivatives contracts.

The IEP is the price emerging during CAS. The final closing price is determined at the conclusion of the auction. The derivatives settlement price is determined separately in accordance with the applicable settlement methodology.

SEBI is considering alternative approaches to determining settlement prices for derivatives on expiry days. The proposals include a methodology based on a combination of the CAS-derived price and VWAP-based prices, as well as using the VWAP of trades during the Continuous Trading Session.

The regulator is also examining the timing and duration of the different market sessions. The review is aimed at addressing the interaction between cash-market price discovery and derivatives trading around the close.

SEBI has also sought views on operational aspects of the CAS framework, including order handling and information dissemination during the auction.

The regulator noted that traded value during CAS may be lower than during comparable periods of CTS. It said the comparison needs to account for differences between the two mechanisms. CTS facilitates continuous trade execution, while CAS aggregates orders and executes them at a single equilibrium price.

SEBI said participation and liquidity could evolve as market participants become more familiar with the auction mechanism. Participants may also adapt their trading strategies and practices.

The regulator further observed that derivatives activity remains significant immediately before and around CAS. This includes the transition period between the cessation of CTS and commencement of the CAS order-entry phase.

As part of its assessment, SEBI compared the premium traded in expiring benchmark index options on expiry days before and after the introduction of CAS. The pre-CAS period covered February 2026 to July 2026, while the post-CAS period covered 3 August to 3 September 2026. The comparison covered 26 expiries in the pre-CAS period and five expiries in the post-CAS period.

SEBI said the review is part of broader measures aimed at encouraging participation in the cash market, improving the availability of securities for borrowing and lending, supporting hedging and arbitrage activity, and improving price discovery and liquidity in underlying securities.

The CAS framework was preceded by two rounds of public consultation in December 2024 and August 2025. SEBI subsequently held discussions with stock exchanges, broker associations, institutional investors and other market participants.

SEBI has invited comments and suggestions from stakeholders on the proposals. The responses must be submitted by 3 October 2026 through the regulator's public consultation portal.

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