Sebi's CAS changes may revive participation on expiry days: Analysts

Revised settlement prices and a shorter closing auction session could reduce uncertainty and encourage derivatives participation from December 7

The Securities and Exchange Board of India’s changes to the closing auction session (CAS), effective December 7, may revive participation in the derivatives segment, specifically on expiry days, analysts noted.

 

The market regulator has changed the settlement methodology for index derivatives on expiry days to the volume-weighted average price. Additionally, timings for CAS have also been revised.

 

“This should reduce expiry-day volatility under the CAS benefiting brokers whose orders remain below pre-CAS levels. With premium turnover for exchanges back to pre-CAS levels, earnings upside may be limited,” said Jefferies in a note.

 

It added that orders traded per day are recovering from the lows of August 2026 — since the implementation of CAS on August 3.

 

The settlement price of index derivatives has been revised back to the volume-weighted average prices (VWAP) of constituent securities during the last 30 minutes of the continuous trading session (CTS)  in the equity cash segment.

 

For expiring stock derivatives, settlement prices will be determined using the VWAP of the underlying stock during the last 30 minutes of the CTS across all stock exchanges.

 

Further, the CAS will operate as a separate 10-minute session from 3.30 pm to 3.40 pm on all trading days. Trading in index derivatives will continue until 3.45 pm on regular trading days, but contracts expiring that day will stop trading at 3.30 pm. Trading in stock derivatives will continue until 3.45 pm, including on expiry days.

 

Industry players said that the regulator had adopted the majority of the suggestions submitted during the consultation. 

 

“On monthly expiries, the difference between the reference price and the settlement price was huge and that writers and option players could not hedge this gap. The existing strategies that had been running since ages was based on option decay strategy — that with expiry the option premium decays and they profited from that. In the current form of CAS, this was not happening to the extent because the price could go anywhere amid uncertainty. That is the reason why high-frequency traders (HFTs) and large players were not participating to the same extent,” said Amit Chandra of HDFC Securities.

 

In August, the average daily trading volume (ADTV) in the equity derivatives across both the exchanges fell to ₹347 trillion from ₹446 trillion in July. However, there has been recovery with ADTV rising to ₹389 trillion in September and reaching ₹506 trillion in October so far. Analysts noted that the higher volumes in October are also on the back of more weekly expiry days in the month.