SEBI consults on expiry-day derivatives settlement and closing-auction changes
SEBI is consulting on two expiry-day derivatives settlement methods and related closing-auction changes. Comments remain open through 3 October 2026.
- SEBI is consulting, not announcing a final rule, on expiry-day settlement for index and stock derivatives.
- One option would immediately use a blended VWAP from the final 30 minutes of continuous trading and the 10-minute Closing Auction Session; the other would retain continuous-trading VWAP for an interim period.
- The paper also proposes changes to indicative index information, market timings, the post-auction derivatives window and selected order-management rules.
- Public comments are open until 3 October 2026.
SEBI has put two routes out for consultation—not selected one
The Securities and Exchange Board of India has opened a consultation on how index and single-stock derivatives should be settled on expiry day after the introduction of the Closing Auction Session, or CAS. The 12 September paper offers two settlement methodologies, alongside proposals on auction information, market timings and order handling. It is a request for public comments, not an adopted change to the rulebook.
That distinction matters. The paper asks whether the market prefers an immediate blended method or an interim continuation of the earlier continuous-trading method. SEBI has invited comments on seven proposals through 3 October 2026. Any final framework would follow the consultation process; the paper itself does not say either alternative is in force.
CAS was introduced in the equity cash segment for stocks with derivatives contracts from 3 August 2026. Before CAS, the closing price used the final 30 minutes of the Continuous Trading Session, or CTS. Under the present CAS framework, an auction determines the cash-market closing price, which is used for expiry-day derivatives settlement. SEBI says feedback from exchanges, brokers, investors and other market participants prompted the review.
The first option: a blended record of actual trading
SEBI’s first option would calculate the expiry-day settlement price from a blended VWAP covering actual trades in the final 30 minutes of CTS and the 10-minute CAS. VWAP, short for Volume Weighted Average Price, is an average that gives more influence to prices associated with more trading activity. It is a way of describing the prices at which trading actually occurred over a defined window rather than relying on a single observation.
The proposed blend would not give the auction an automatic 10% weight merely because CAS lasts 10 minutes. Its contribution would be determined by the actual traded value in CAS compared with trading during the relevant continuous period. For stock derivatives, SEBI says the price would use the VWAP across exchanges over those two periods. The underlying idea is to include transactions from both parts of the close rather than treating one of them as dispositive.
This is a proposed methodology, not a statement that CAS should be discarded. In fact, the paper presents the blended approach as the intended eventual framework in either path. But a consultation can change a proposal, and no settlement methodology should be described as newly implemented until SEBI issues a final decision.
The second option: keep continuous-trading VWAP during an interim period
The alternative would continue to calculate expiry-day settlement from trades in the last 30 minutes of CTS only. CAS transactions would not enter that calculation during the interim. In practical terms, that would maintain the methodology used before CAS for the settlement calculation, even though CAS would continue to determine the cash-market close for participating securities.
SEBI says a later move to the blended methodology could be considered only after at least one year from the start of the revised expiry-settlement approach. The paper is explicit that a transition after a year would not be automatic. It would depend on the experience with CAS, including liquidity, participation, market familiarity and observed price-discovery characteristics. Business Standard and News On AIR independently reported the same two alternatives and the 3 October deadline.
The decision being consulted on is therefore about timing as much as arithmetic: whether to introduce the combined CTS-and-CAS calculation immediately, or retain CTS VWAP while CAS gains a longer operating record. Readers should not interpret either choice as a forecast about prices or a recommendation on trading positions.
Why the auction data and clocks are also under review
CAS is an end-of-day auction in which orders accumulate before the exchange matches them at an equilibrium price. That final auction price is different from the Indicative Equilibrium Price, or IEP, displayed while the auction is still evolving. An IEP is an estimate of the price at which the largest executable quantity could match at that moment; it is not evidence that a transaction has occurred at that price.
For an index, SEBI says the same caution applies to an indicative index value derived from the IEPs of constituent stocks. The consultation proposes that exchanges would stop disseminating that IEP-derived indicative index value during CAS while continuing to provide security-level IEPs. The final index value would still be established after the auction concludes and the underlying securities’ final prices are determined.
The paper also puts forward two timing alternatives. Under Option A, continuous trading in CAS stocks would run until 3:30 pm, CAS would follow from 3:31 pm to 3:40 pm, and derivatives trading would be permitted until 3:45 pm. Under Option B, the current 3:15 pm end for continuous trading in CAS stocks would remain, CAS would run to 3:25 pm, and derivatives could trade until 3:30 pm. Both would propose a five-minute post-CAS derivatives window and a transition period of up to one minute. Neither timetable has been adopted.
Order restrictions and iceberg orders are part of the same consultation
SEBI also proposes targeted changes to order management in the auction. The existing overall price band of plus or minus 3% around the reference price would remain. But a limit order placed at, or modified to, more than 1% away from that reference price—up to the 3% limit—would not be cancellable during CAS. Price-improving changes would still be permitted: a buyer could raise a bid and a seller could lower an offer, subject to the band.
Another proposal would move any unexecuted balance of an iceberg order from CTS into CAS as a normal limit order, with the full remaining quantity disclosed in the auction order book. An iceberg order normally reveals only part of a larger order while it is active. SEBI is asking whether the remaining quantity should enter the closing auction transparently rather than be excluded from it.
These operational questions explain why the consultation extends beyond a formula for the settlement price. It covers the information participants see, when they can trade and how orders persist into the auction. For a wider primer on separating durable market information from day-to-day noise, read Reddy News’ guide to the signals investors are watching.
What to watch before anything changes
The immediate date is 3 October, the deadline for stakeholder comments. SEBI’s paper asks directly which settlement route and timing option are preferred, as well as whether the information and order-management changes should proceed. The responses may help determine what, if anything, reaches a final circular.
Until then, the clearest conclusion is procedural: CAS remains in place while SEBI consults on its interaction with expiry-day derivatives settlement. The current document does not announce the implementation of blended VWAP, an automatic one-year switch or either proposed market timetable. Reddy News will distinguish any final regulatory action from this consultation stage.
The review is also part of a broader discussion about how India’s market infrastructure evolves. Related reading includes Reddy News’ explanation of the Demat 2.0 tokenised corporate-bond pilot and its overview of policy debates shaping the national conversation. Those explainers provide context; they do not alter the status of this specific SEBI proposal.
Reader guide
Article questions, answered
Short answers to common reader questions based on the reporting above.
Has SEBI changed the expiry-day settlement method?
No. SEBI has issued a consultation paper seeking views on two proposed methodologies and related Closing Auction Session changes. The paper does not adopt either settlement option.
What is VWAP?
Volume Weighted Average Price, or VWAP, is an average trading price that gives more influence to transactions with greater traded value or volume. In SEBI’s blended option, the contribution of continuous trading and the auction would depend on actual trading activity, not on a preset allocation.
What is the Closing Auction Session?
The Closing Auction Session, or CAS, is an end-of-day auction in the equity cash market. Buy and sell orders are collected and matched at an equilibrium price, which becomes the closing price for the participating security. It is distinct from continuous trading, where trades are matched throughout the session.
When can the public comment on the proposals?
SEBI has invited comments on the seven proposals through 3 October 2026, using its public-comment process.
Sources and further reading
These references support the factual context used in this article. Links open the original publisher.
- Consultation paper on Review of Certain Aspects of the Closing Auction Session, Market Timings and Settlement Methodology for Derivatives ContractsSecurities and Exchange Board of India · accessed 13 September 2026
- SEBI proposes changes to methodology for calculating expiry-day settlement prices of index and stock derivativesNews On AIR · accessed 13 September 2026
- Sebi proposes changes to derivatives settlement, closing auction timingsBusiness Standard · accessed 13 September 2026
