SEBI is evaluating changes to the Closing Auction Session introduced in August 2026, following 3,500 industry responses regarding expiry day volatility. The regulator is weighing adjustments to derivative settlement methodologies to address price differences between exchanges.
The Securities and Exchange Board of India (SEBI) is finalizing a review of the Closing Auction Session (CAS) framework after receiving over 3,500 comments from market participants by the October 3, 2026, deadline. The regulator is currently assessing these inputs to decide on potential adjustments to the rules, which were initially implemented on August 3, 2026, for all F&O-eligible stocks to improve price transparency and discovery.
The regulatory review comes after market participants flagged issues with increased volatility and price divergence between the NSE and BSE benchmarks on expiry days. Under the current CAS structure, the way closing prices are determined has sometimes led to gaps that affect derivative contracts. These discrepancies have created challenges for traders, arbitrageurs, and institutional investors who rely on stable pricing mechanisms during the final minutes of trading.
To address these concerns, SEBI is considering specific changes to the derivatives settlement methodology. Potential options currently on the table include adopting a blended volume-weighted average price (VWAP) method, which would combine both legacy and new auction data, or a temporary return to the previous CTS-only VWAP methodology for derivative expiry settlements. The objective is to stabilize the settlement process while maintaining the transparency benefits that the auction session was originally designed to provide.
In a separate development aimed at deepening liquidity in the broader financial system, the National Stock Exchange (NSE) received a No Objection Certificate from SEBI on October 1, 2026, to launch futures contracts on a corporate bond index. This move is part of the regulator's wider push to strengthen fixed-income market infrastructure, following the successful adoption of electronic bidding platforms and request-for-quote systems. By creating more tools for hedging and price discovery, the regulator hopes to reduce structural friction in the debt market.
For investors and market participants, the next major update to watch is the official regulatory circular that will detail the final decisions on the CAS framework. The changes, once implemented, are expected to influence how index and stock derivatives are settled on expiry days, which could directly impact the strategies of passive funds and institutional traders tracking these benchmarks. Until the final guidelines are issued, market participants may continue to monitor the transition period closely for any further guidance on settlement procedures.