Sebi Panel Backs Existing VWAP-based Expiry Settlement Formula, Proposes New CAS Timings

The Securities and Exchange Board of India’s (Sebi) Secondary Market Advisory Committee has favoured retaining the existing method of calculating expiry-day settlement prices for index and stock derivatives, deferring a proposed formula that would incorporate closing auction session (CAS) prices.

Under the recommended approach, the volume-weighted average price (VWAP) of trades executed between 3 PM and 3:30 PM during the continuous trading session would determine the settlement price. The arrangement could remain in place for at least a year before Sebi considers a change, according to a report by Moneycontrol.

Sebi’s September 12, 2026 consultation paper had sought views on two options: a blended VWAP covering the final 30 minutes of continuous trading and the closing auction, or retaining the existing continuous-session calculation as an interim measure.

The debate follows the introduction of CAS for stocks in the futures and options (F&O) segment on August 3. The change to an auction-based closing mechanism raised concerns about price volatility and its potential impact on derivatives settlement.

CAS Stocks To Trade Till 3:30 PM

The committee has also favoured extending continuous trading in stocks subject to CAS until 3:30 PM, followed by the auction from 3:31 PM to 3:40 PM. Derivatives trading would continue until 3:45 PM, the report said.

The panel has backed continuing the display of the indicative equilibrium price (IEP) during the closing auction. The IEP indicates the potential matching price for orders in an individual stock. An indicative index value derived from these prices, however, is not an actual index level based on executed trades.

Market Orders Still Under Review

Sebi is expected to examine the treatment of market orders. Participants have raised concerns that traders could place large orders during the auction and cancel them later, potentially influencing the IEP and distorting price signals. For iceberg orders, the committee has favoured allowing traders to choose between validity until 3:30 PM and 3:40 PM. Iceberg orders let traders execute large transactions while displaying only a portion of the total quantity at a time. Orders remaining valid through the auction would have their full quantity visible in the CAS order book.

The recommendations are expected to feed into Sebi’s forthcoming circular on the closing auction framework.