The Securities and Exchange Board of India (SEBI) has received nearly 20,000 responses regarding its proposed changes to the Closing Auction Session (CAS) framework. Industry stakeholders have expressed concerns over potential volatility and liquidity issues since the session's introduction in August. Investors are now watching for the final regulatory circular, which will dictate future derivatives settlement methods.
The Securities and Exchange Board of India (SEBI) has concluded the public consultation process for its proposed updates to the Closing Auction Session (CAS) framework. By the October 3, 2026, deadline, the regulator received approximately 20,000 comments from various market participants, including institutional investors, arbitrageurs, and trading firms. This large volume of feedback highlights the sensitivity surrounding how settlement prices are calculated in the Indian derivatives market.
The Closing Auction Session was implemented on August 3, 2026, with the aim of improving price discovery. However, the mechanism has faced criticism regarding its impact on market liquidity and stability. The core of the debate lies in the proposed shift toward a blended framework for derivatives settlement. Currently, market participants are divided between the new blended volume-weighted average price (VWAP) model and the traditional continuous trading session (CTS) VWAP method.
Arbitrageurs and institutional traders have raised operational concerns, noting that the blended model can make it difficult to manage exposure effectively. The primary fear is that the variable weights assigned in a blended model remain unclear until after trades are executed, creating unpredictability for those trying to maintain perfectly hedged positions. This uncertainty can complicate strategy execution for large portfolios during the critical final minutes of the trading day.
Beyond settlement calculations, the consultation also addressed market timings and the transparency of the indicative index value. Many stakeholders have supported extending continuous trading until 3:30 pm to better align the cash and derivatives segments. Conversely, there has been significant resistance to proposals that would restrict the disclosure of the indicative index value during the auction. Critics argue that this value acts as a vital real-time anchor, and its removal could hurt transparency without actually preventing the manipulation the regulator seeks to curb.
SEBI Chairman Tuhin Kanta Pandey has indicated that the regulator plans to analyze the feedback quickly and issue a final framework or circular shortly. The regulator has previously taken action against certain entities for alleged manipulation within the auction mechanism, emphasizing its focus on maintaining a fair trading environment. For investors and traders, the next important update will be the release of this final circular, which will confirm whether the regulator sticks to the new blended model, returns to the previous method, or adopts a hybrid approach that addresses industry concerns.