SEBI is expected to modify the Closing Auction Session (CAS) for derivative contracts by late October 2026 to reduce expiry-day volatility. The regulator plans to return to the 30-minute volume-weighted average price (VWAP) method for F&O settlement, while keeping the auction session for cash market stocks.
The Securities and Exchange Board of India (SEBI) is set to adjust the closing auction framework for derivative contracts, responding to concerns about increased market volatility on expiry days. After receiving significant feedback—roughly 20,000 comments—following the August 2026 introduction of the Closing Auction Session (CAS), the regulator is moving to refine its approach. The expected change involves returning to the 30-minute volume-weighted average price (VWAP) method for settling Futures and Options (F&O) contracts, while retaining the current auction mechanism for stocks in the cash market.
For traders and institutional investors, the primary concern has been the sharp price swings observed during the final minutes of expiry sessions since the CAS implementation. By reverting to the 30-minute VWAP for derivatives, SEBI aims to provide a more stable price discovery mechanism. Investors should note that this transition is a direct response to system-wide feedback and is designed to ensure smoother settlement processes during high-volume periods.
Beyond settlement mechanics, the regulator is sharpening its focus on technology and corporate action efficiency. By November 2026, SEBI aims to integrate tender offers and buybacks into the existing interoperability framework. This consolidation is expected to lower operational costs for brokers and investors by removing the need for parallel clearing arrangements, which currently complicate compliance and increase processing time.
Separately, the regulator is finalizing rules for the use of artificial intelligence and machine learning by market intermediaries. These guidelines will require firms to implement strict data controls, human oversight, and mandatory "kill switches" to prevent runaway trading algorithms. These measures are part of a broader push to maintain structural resilience as market participants increasingly adopt automated trading strategies.
The key monitorable for investors is the specific timeline for the settlement methodology change, which is expected by the end of October 2026. Additionally, the graded compliance model being considered for brokers—where regulatory oversight is calibrated based on firm size and technological dependency—will be a critical development for market participants to track in the coming months as the regulator seeks to balance innovation with systemic safety.