SEBI has proposed reforms to the Closing Auction Session (CAS) to address volatility and liquidity concerns observed since its August 3, 2026, rollout. The proposals include adjustments to settlement price calculations, market timings, and stricter order cancellation rules. Investors and stakeholders can submit public comments until October 3, 2026.
The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing significant changes to how the market operates during the final minutes of the trading day. These proposals aim to refine the Closing Auction Session (CAS), which was introduced on August 3, 2026. Since its implementation, the new session has faced criticism regarding thin liquidity and increased price volatility on expiry days.
Proposed Changes to Settlement Prices
One of the most important aspects for derivative traders is how the final settlement price is calculated on expiry days. Currently, this price is based on the volume-weighted average price (VWAP) of trades during the final 30 minutes of continuous trading. SEBI is now considering a 'blended' approach that would include trades from both the final 30 minutes of continuous trading and the 10-minute Closing Auction Session. Alternatively, the regulator may opt to keep the current system for another year to allow the market more time to adapt to the new closing environment. This decision is critical as settlement prices directly influence the profit or loss for derivative contracts.
New Controls on Order Flow and Timing
To prevent aggressive order manipulation in the final minutes of trade, SEBI plans to tighten controls on order cancellations. The regulator proposes to lock in orders placed or modified more than 1 per cent away from the reference price. This rule is designed to prevent participants from placing and quickly cancelling large orders to create false price movements or 'skew' the auction book. Price-improving modifications will still be allowed to ensure liquidity providers can continue to function effectively.
SEBI is also addressing potential confusion regarding Indicative Index Values (IIV). The regulator noted that many investors mistake these indicative figures for actual traded prices. To improve transparency and avoid this misinterpretation, SEBI plans to stop displaying IIV during the closing auction session, shifting the focus toward actual security-level equilibrium prices.
Market Timing Adjustments
Operational efficiency is another core focus of the proposals. SEBI has suggested two options for market timing. The first option extends the continuous trading window for CAS-eligible stocks until 3:30 pm, followed by the auction and a derivative market window ending at 3:45 pm. The second option maintains the current 3:15 pm cut-off for continuous trading, keeping the derivatives market closed at 3:30 pm. By adjusting the transition period between continuous trading and the closing auction, the regulator aims to reduce the gap between these sessions, potentially making the market more streamlined.
These proposals are currently open for public feedback. Investors, brokers, and other stakeholders have until October 3, 2026, to submit their comments. The final rules will be shaped based on the feedback received, with the goal of improving stability and transparency for all market participants.