SEBI proposes new expiry-day settlement formula for derivatives after CAS concerns
SEBI has proposed two options to change how expiry-day settlement prices for derivatives are calculated following the introduction of the Closing Auction Session (CAS). The regulator is weighing a blended VWAP using CTS and CAS trades against an interim return to the pre-CAS CTS VWAP method.
- Sep 12, 2026,
- Updated Sep 12, 2026 1:36 PM IST
The Securities and Exchange Board of India (SEBI) has proposed two alternatives for determining expiry-day settlement prices of index and single-stock derivatives, following concerns over the interaction between derivatives trading and the Closing Auction Session (CAS). The proposals seek to address uncertainty created by the new closing-price discovery mechanism introduced on August 3, 2026.
Why SEBI is reviewing the settlement method
Before CAS was introduced, expiry-day settlement prices were linked to the closing price of the underlying securities, with the latter determined using the volume-weighted average price (VWAP) of trades during the last 30 minutes of continuous trading. Under the current CAS framework, closing prices of F&O stocks are determined through the auction, and derivatives settlement prices consequently reflect CAS-based closing prices.
SEBI said market participants have raised concerns that, given the hyperactivity in expiring index options and derivatives trading based on Indicative Equilibrium Prices (IEPs) during CAS, both option buyers and sellers may face greater uncertainty over expiry-day settlement prices.
MUST READ: Closing Auction Session here to stay, says Sebi chairman Pandey
Option 1: Blended VWAP
Under the first proposal, settlement prices for both index and stock derivatives would be calculated using transactions executed during the last 30 minutes of continuous trading (CTS) and 10 minutes of CAS. SEBI calls this the “Blended VWAP” methodology.
Importantly, the regulator does not propose assigning a fixed weight to either period. For index derivatives, the contribution of CTS and CAS transactions would depend on their actual traded value. This means the influence of the CAS would increase or decrease according to the amount of trading that actually takes place during the auction.
SEBI said the approach would incorporate a broader period of actual market transactions and allow the relative contribution of CTS and CAS to emerge from market activity rather than a predetermined formula.
DO READ: Index manipulation case: Sebi lifts trading ban on JPMorgan unit after Rs 2.96 crore deposit
Option 2: Temporary return to CTS VWAP
The second proposal would use only transactions executed during the last 30 minutes of CTS to determine expiry-day settlement prices for both index and single-stock derivatives. CAS transactions would not be included during this interim period.
SEBI said this option would provide continuity with the familiar pre-CAS methodology while giving market participants time to adapt to the auction mechanism. It would also allow liquidity and participation in CAS to develop before the settlement methodology is changed again.
Under Option 2, SEBI proposes considering a transition to the blended methodology only after at least one year of the revised settlement framework. Such a move would depend on sufficient CAS liquidity and participation, market familiarity with the auction mechanism and an assessment of its price-discovery characteristics across different market conditions.
SEBI clarified that the CTS-based approach would be an interim arrangement rather than the intended long-term framework. In both alternatives, the regulator's eventual objective is to incorporate actual transactions from both the last 30 minutes of CTS and 10 minutes of CAS into expiry-day settlement prices.
The regulator has sought public comments on both options as part of its consultation on the CAS framework.
ALSO READ: CAS: Will derivatives expiry see return of old model?
The Securities and Exchange Board of India (SEBI) has proposed two alternatives for determining expiry-day settlement prices of index and single-stock derivatives, following concerns over the interaction between derivatives trading and the Closing Auction Session (CAS). The proposals seek to address uncertainty created by the new closing-price discovery mechanism introduced on August 3, 2026.
Why SEBI is reviewing the settlement method
Before CAS was introduced, expiry-day settlement prices were linked to the closing price of the underlying securities, with the latter determined using the volume-weighted average price (VWAP) of trades during the last 30 minutes of continuous trading. Under the current CAS framework, closing prices of F&O stocks are determined through the auction, and derivatives settlement prices consequently reflect CAS-based closing prices.
SEBI said market participants have raised concerns that, given the hyperactivity in expiring index options and derivatives trading based on Indicative Equilibrium Prices (IEPs) during CAS, both option buyers and sellers may face greater uncertainty over expiry-day settlement prices.
MUST READ: Closing Auction Session here to stay, says Sebi chairman Pandey
Option 1: Blended VWAP
Under the first proposal, settlement prices for both index and stock derivatives would be calculated using transactions executed during the last 30 minutes of continuous trading (CTS) and 10 minutes of CAS. SEBI calls this the “Blended VWAP” methodology.
Importantly, the regulator does not propose assigning a fixed weight to either period. For index derivatives, the contribution of CTS and CAS transactions would depend on their actual traded value. This means the influence of the CAS would increase or decrease according to the amount of trading that actually takes place during the auction.
SEBI said the approach would incorporate a broader period of actual market transactions and allow the relative contribution of CTS and CAS to emerge from market activity rather than a predetermined formula.
DO READ: Index manipulation case: Sebi lifts trading ban on JPMorgan unit after Rs 2.96 crore deposit
Option 2: Temporary return to CTS VWAP
The second proposal would use only transactions executed during the last 30 minutes of CTS to determine expiry-day settlement prices for both index and single-stock derivatives. CAS transactions would not be included during this interim period.
SEBI said this option would provide continuity with the familiar pre-CAS methodology while giving market participants time to adapt to the auction mechanism. It would also allow liquidity and participation in CAS to develop before the settlement methodology is changed again.
Under Option 2, SEBI proposes considering a transition to the blended methodology only after at least one year of the revised settlement framework. Such a move would depend on sufficient CAS liquidity and participation, market familiarity with the auction mechanism and an assessment of its price-discovery characteristics across different market conditions.
SEBI clarified that the CTS-based approach would be an interim arrangement rather than the intended long-term framework. In both alternatives, the regulator's eventual objective is to incorporate actual transactions from both the last 30 minutes of CTS and 10 minutes of CAS into expiry-day settlement prices.
The regulator has sought public comments on both options as part of its consultation on the CAS framework.
ALSO READ: CAS: Will derivatives expiry see return of old model?