Sebi tweaks CAS timings, restores VWAP-based settlement for expiring derivatives

The Securities and Exchange Board of India (Sebi) on Thursday revised the Closing Auction Session (CAS) framework, bringing back the volume-weighted average price (VWAP) methodology for determining expiry-day settlement prices of stock and index derivatives, while modifying trading timings and order-handling rules.

Under the revised framework, settlement prices for expiring derivatives contracts will be calculated using the VWAP of the underlying securities during the final 30 minutes of the continuous trading session. The changes follow a review of the existing CAS framework, feedback from market participants and recommendations of Sebi's Secondary Market Advisory Committee.

The regulator said the review was undertaken with a view to ensuring “efficient price discovery and orderly functioning of the cash and derivatives segments”.

The revised provisions, except those relating to the transition of unexecuted limit and iceberg orders, will come into effect from December 7, 2026. Changes governing the transition of such orders will take effect from February 8, 2027.

CAS timings revised

The 10-minute closing auction session will operate from 3:30 pm to 3:40 pm on all trading days. Order entry for both limit and market orders will be allowed from 3:31 pm to 3:36 pm, followed by a period during which only limit orders can be placed. The session will close at a randomly determined time between 3:38 pm and 3:40 pm.

Trading in index and stock derivatives will continue until 3:45 pm. However, trading in expiring index derivatives contracts will stop at 3:30 pm on expiry days. The post-close session in the cash segment will run from 3:50 pm to 4 pm, with trades executed at the closing price of securities.

For determining the reference price used during CAS, exchanges will use the VWAP of trades executed during the final 15 minutes of the continuous trading session. If no trade takes place during that period, the day's last traded price will be used. If the security has not traded during the day, the previous session's closing price, adjusted for corporate actions where applicable, will serve as the reference.

Pandey had said CAS was here to stay

The changes come after market participants raised concerns about sharp price swings around the closing auction, particularly on derivatives expiry days, following the introduction of CAS on August 3.

Sebi chairman Tuhin Kanta Pandey had earlier defended the auction mechanism, saying it would not be rolled back. “CAS is not going anywhere. CAS is here to stay,” he said in September, while acknowledging that liquidity could be a concern during the initial stages of implementation.

Pandey had also indicated that the regulator was examining whether derivatives settlement prices could be determined differently without scrapping CAS. Sebi subsequently issued a consultation paper on September 12 seeking public comments on the framework.

Under Thursday's circular, settlement prices for expiring index derivatives will be based on the underlying index value calculated using the VWAP of constituent securities during the final 30 minutes of continuous trading. For stock derivatives, settlement will be based on the underlying stock's VWAP during the same period across stock exchanges.

Exchanges will calculate and disseminate indicative index values and stock VWAPs in real time during the relevant period.

The regulator has also specified that unexecuted iceberg orders within the applicable price bands can transition into CAS as fully disclosed limit orders, unless traders opt out when placing the original orders.