Summary of this article
Sebi will revise the derivative settlement pricing methodology.
Operational issues emerged during the closing auction rollout.
The regulator will issue a consultation paper shortly.
Securities and Exchange Board of India (Sebi) is set to review the settlement price methodology for derivative contracts in the light of the Closing Auction Session rollout. According to a press release issued by the market regulator on September 4, 2026, a consultation paper with the proposed adjustments will be issued in one week.
"Having considered the experience of the initial period of CAS implementation and the feedback received from various stakeholders, Sebi may be proposing certain changes in the methodology for determination of settlement prices of derivative contracts for which a consultation paper will be issued in about a week," Sebi said.
Notably, Sebi rolled out the CAS framework on August 3, 2026. The CAS system replaced the Volume Weighted Average Price (VWAP) methodology. Under the VWAP the daily closing price of a stock was calculated on the basis of the trades executed during the final 30 minutes of the continuous trading session. However, under the updated CAS mechanism, the closing price is determined through a dedicated 20 minute auction window between 3:15 PM and 3:35 PM.
All eligible buy and sell orders are pooled together during this specific timeframe and matched to find a single equilibrium closing price. According to a Sebi circular dated January 16, the discovered closing price also serves as the direct basis for determining the settlement prices of derivative contracts on their respective expiry days. The regulator highlighted the dual purpose of this newly discovered closing figure.
"As stipulated in the said circular, the closing price determined through CAS also serves as a basis for determination of settlement prices for derivative contracts on expiry," Sebi said.
However, during the very first month of CAS’ run, market participants flagged several operational issues, these issues revolved around steep price swings, disrupted algorithmic trades, and skewed options premiums.
Why Is Sebi Reviewing CAS
According to the release, the market regulator has maintained a watch on the functioning of the new auction mechanism and its broader impact on equity markets throughout the first month of its operation. Detailing the outreach efforts undertaken since the system went live, the regulator explained its ongoing strategy.
"Since its implementation, Sebi has closely engaged with various stakeholders, including Stock Exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations and FPIs, with a view to facilitating smooth implementation and addressing operational and other issues arising during the initial period of adoption," Sebi said.
During the first month, Sebi gathered feedback and suggestions from a diverse range of market participants and industry stakeholders. These inputs were actively collected, taking into account discussions on various social media platforms as well as reports across traditional media outlets.
Among the operational issues raised by market participants, one of the significant issues raised was how the settlement prices of derivative contracts were determined on their expiry days based on the closing price discovered through the CAS mechanism. Pointing out the primary concern shared by market participants, the regulator specified the exact process under scrutiny.
"Among the issues raised, a significant area of feedback relates to the determination of settlement prices of derivative contracts on expiry based on the closing price determined through CAS," Sebi said.
Teething Troubles For CAS
The first month of the CAS rollout saw operational hurdles that triggered concern among traders and institutional investors alike. One of the issues flagged by market participants was heightened volatility and price swings during the auction window.
The turbulence also spilled over into the derivatives market, causing fluctuations in options premiums at the very end of the trading day. During monthly expiry sessions in August, certain index options experienced sudden price surges within the auction session. Such movements disrupted hedging strategies and also rendered algorithmic trading models ineffective, skewing technical analysis charts.
Additionally, traders reported a disconnect between the underlying asset price during regular continuous trading hours and the final settlement price discovered during CAS.
Despite the volatility, the mechanism handled high volume impacting NSE turnover. On its first major index rebalancing day, the National Stock Exchange recorded a historic Rs 39,718 crore turnover entirely within the CAS window, accounting for 22 per cent of its daily cash market volume.
However, traders still reported a severe disconnect between the underlying asset price during continuous trading and the final CAS settlement price.
This disconnect increased financial risks, forcing cautious participants to unwind positions before the auction to avoid expiry volatility. Ultimately, these operational hurdles led to the regulatory review of the derivative settlement process.
