Regulator seeks feedback on expiry-day pricing, Closing Auction Session and market timings.
The Securities and Exchange Board of India (SEBI) has proposed changes to how settlement prices for derivatives contracts are determined, following its initial experience with the Closing Auction Session (CAS). The regulator has floated a consultation paper covering the relationship between the cash market’s closing process and the derivatives segment. The move follows market participants’ concerns about differences between the closing price discovered through CAS and the price used to settle derivatives on expiry days.
CAS was introduced on August 3 as part of efforts to improve closing-price discovery in the equity market. However, its interaction with derivatives trading has drawn fresh attention to the timing and methodology used to calculate expiry-day settlement prices.
Two options for expiry-day settlement.
SEBI has proposed two possible approaches for determining settlement prices of index and stock derivatives. The first option would use a blended volume-weighted average price (VWAP), combining eligible trading activity during the closing auction and the preceding continuous trading period.
The second would rely on the closing trade session, effectively separating derivatives settlement from the CAS mechanism for an interim period. The proposals aim to reduce discrepancies between cash-market closing prices and derivatives settlement values while giving market participants greater clarity on expiry-day pricing.
The proposals also include changes to the Closing Auction Session.
SEBI is also examining operational aspects of the Closing Auction Session, including the display of indicative prices and how orders are treated during the auction. Among the proposals is restricting the cancellation of certain limit orders placed significantly away from the prevailing reference price. The regulator has also suggested changes to the post-closing auction period and the information displayed during CAS.
The objective is to reduce confusion or unusual price movements during a period when market activity can become particularly sensitive. SEBI is simultaneously seeking views on alternative market schedules. The timing of the cash-market closing auction and the derivatives trading window has become an important issue because the two processes currently don’t end at the same point.
The regulator’s latest consultation therefore looks at whether adjustments to trading hours could make the transition between the cash and derivatives markets more orderly. SEBI has invited stakeholder comments on the proposals until October 3, 2026. The final framework will depend on the feedback received and the regulator’s assessment of the alternatives.
