Summary of this article
Sebi restored VWAP-based settlement for expiring stock and index derivatives contracts
The closing auction session will run from 3:30 PM to 3:40 PM
Most changes take effect December 7, while order-transition rules start February 8
The Securities and Exchange Board of India (Sebi) reversed its earlier decision to link futures and options (F&O) expiry settlement prices to the closing auction session (CAS), restoring the volume-weighted average price (VWAP) method after strong pushback from the industry. The regulator’s October 15 circular follows feedback on its September 12 consultation paper, recommendations from its Secondary Market Advisory Committee and discussions with stock exchanges.
Under the revised framework, settlement prices for expiring stock and index derivatives contracts will be calculated using VWAP data from the final 30 minutes of the continuous trading session in the equity cash market. The changes will take effect from December 7, 2026.
Sebi Reverts To VWAP-Based Settlement
Sebi had introduced the CAS through a circular dated January 16, 2026, with the system set to take effect from August 3, 2026. It was designed to make the closing price of stocks more transparent by matching buy and sell orders in a separate auction.
The framework also required expiring stock and index derivatives contracts to be settled using closing prices determined through CAS.
The revised circular restores the earlier VWAP-based approach for expiry settlement. For index derivatives, the settlement price will be based on the underlying index value calculated using the VWAP of its constituent securities during the final 30 minutes of the continuous trading session.
For stock derivatives, clearing corporations will determine settlement prices using the VWAP of the underlying stock during the final 30 minutes of the cash market session across all stock exchanges.
Stock exchanges will also have to calculate and disseminate indicative index values and stock VWAPs in real time during this period.
Sebi said the review was undertaken with a view to “ensuring efficient price discovery and orderly functioning of the cash and derivatives segments.”
CAS To Run From 3:30 PM To 3:40 PM
The CAS will operate for 10 minutes, from 3:30 PM to 3:40 PM, on all trading days.
Market and limit orders will be allowed between 3:31 PM and 3:36 PM. From 3:36 PM, only limit orders will be accepted. The system will close order entry at a randomly selected time between 3:38 PM and 3:40 PM.
Once order entry closes, stock exchanges will match orders under the CAS framework and disseminate the closing price and traded quantity.
The reference price for CAS will be based on the VWAP of trades executed during the final 15 minutes of the continuous trading session. If no trade takes place during that period, the last traded price of the day will be used. If the security has not traded during the day, the previous trading day's closing price will serve as the reference price, subject to adjustments for corporate actions.
Derivatives Trading Hours Revised
Trading in index derivatives will continue until 3:45 PM on regular trading days. However, expiring index derivatives contracts will stop trading at 3:30 PM on expiry days.
Stock derivatives will continue trading until 3:45 PM on all trading days, including expiry days.
The post-close session in the cash market will run from 3:50 PM to 4 PM, with trades executed at the closing price of securities.
Changes To Unexecuted Orders
Sebi has also revised the rules for carrying unexecuted orders from the continuous trading session into CAS.
Eligible unexecuted limit orders will move to CAS, except stop-loss orders and orders priced outside the applicable CAS price bands.
Unexecuted iceberg orders within the permitted price bands will be converted into fully disclosed limit orders when carried forward, unless the market participant opts out while placing the original order. Iceberg orders split a large order into smaller visible quantities, limiting the amount displayed to the market at one time.
These converted orders will have lower time priority than other limit orders carried forward from the continuous trading session, but higher priority than limit orders placed during CAS. The changes governing the transition of unexecuted orders will take effect from February 8, 2027.
The remaining modifications, including the revised CAS timings and derivatives settlement methodology, will come into effect from December 7, 2026.
Sebi has directed stock exchanges and clearing corporations to amend their standard operating procedures in consultation with the regulator within seven days of the circular.
