SEBI Mulls 1-Year Moratorium on Closing Auction Session (CAS) for Derivatives

• by Akanksha Mishra
• 2026-10-05 20:02:00

Responding swiftly to intense pushback from over 20,000 retail and institutional market participants, the Securities and Exchange Board of India (SEBI) is actively considering a one-year moratorium on its newly introduced Closing Auction Session (CAS) framework for derivatives settlement. Introduced in August to align domestic trading infrastructure with established international centers like New York and Hong Kong, the end-of-day auction mechanism triggered acute volatility, unexpected price swings, and heightened delivery risks across equity futures and options contracts on high-stakes expiry sessions. Under the proposed recalibration expected to be finalized by the end of October 2026, the capital markets regulator plans to pause CAS for derivatives settlement and reinstate the time-tested Volume-Weighted Average Price (VWAP) of the final 30 minutes of regular trade (3:00 PM to 3:30 PM) to calculate settlement benchmarks.

Expiry-Day Volatility Sparks Regulatory Review: 20,000 Public Submissions Reshape Policy

The push to reconsider the auction window follows widespread operational friction across Dalal Street trading desks:

Unintended Price Swings on Expiry: While the 10-minute CAS auction was designed to curb end-of-day price manipulation, market participants observed extreme turbulence and erratic spread widenings during monthly and weekly expiry sessions, creating settlement discrepancies for retail derivative traders.

Massive Public Consultation: Taking to social media platform X over the weekend, the market regulator confirmed receiving approximately 20,000 public submissions and suggestions responding to its consultation paper floated last month, reflecting unprecedented engagement from proprietary desks, algorithmic firms, and retail investors.

Partial Rollback Strategy: Sources familiar with regulatory discussions indicated that while CAS will be suspended for determining final derivative settlement prices for at least twelve months, closing auctions will continue to establish end-of-day closing prices for underlying cash-market equities with lower liquidity profiles.

Return to 30-Minute VWAP: Aligning Indian F&O Settlement with Global Best Practices

The transition back to a broader pricing duration aims to eliminate manipulation vulnerabilities inherent in narrow auction windows:

Restoring 30-Minute VWAP: Regulators plan to revert to the volume-weighted average price spanning the last 30 minutes of standard cash-market trading, a mechanism that spreads trade weights evenly and dampens artificial eleventh-hour price distortion.

Conforming with US and European Norms: The revised architecture brings India's derivatives clearing process into closer harmony with major European and American bourses, where complex derivatives settlement formulas rely on multi-minute weighted averages rather than a single concentrated closing auction.

Implementation Timeline: Market insiders indicate SEBI is on track to notify the formal circular and implement the revised settlement framework before the end of October 2026.

Transparency Retained: Indicative Index Values and Market Timings Remain Intact

In its initial September review roadmap, SEBI had weighed several alternative operational curbs that faced strong institutional pushback:

Pushback Against Masking Indicative Index Levels: The regulator initially considered halting real-time publication of indicative index values during the 10-minute CAS window to deter speculative positioning. However, major institutional trading desks highlighted that proprietary algorithms could easily reconstruct synthetic index levels, and withholding public data would merely hurt retail market transparency.

Emphasizing Investor Education: Acknowledging institutional feedback, the regulator decided to keep indicative values visible while committing to comprehensive educational campaigns to clarify that final index calculations are locked only at the conclusion of the 10-minute auction.

Preserving Established Trading Clocks: Stakeholders overwhelmingly backed maintaining the existing operational timeline—retaining continuous regular cash trading until 3:30 PM alongside derivatives execution through 3:45 PM—to ensure smooth cash-futures reconciliation and orderly post-market clearing.

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