SEBI's CAS Overhaul: Brokers Set to Gain More Than Exchanges
Jefferies reports that SEBI's revised Closing Auction Session framework will cut volatility and boost broker volumes, but offer limited gains for exchanges.
The Securities and Exchange Board of India (SEBI) is shaking up the Closing Auction Session (CAS) framework, a move that is expected to bring stability to the markets. According to a recent report by Jefferies, these regulatory changes are poised to significantly reduce volatility on expiry days, creating a more favorable environment for brokers compared to stock exchanges.
Who Wins in the New Framework?
The Jefferies report highlights a clear divide in how the market participants will be affected. For brokers, the revised methodology for calculating settlement prices for expiring index derivatives removes a layer of uncertainty. This shift is expected to drive a recovery in order volumes, especially for those whose activity had dipped below pre-CAS levels.
On the other hand, the outlook for stock exchanges is more muted. Jefferies suggests that the earnings upside for exchanges may be limited because their premium turnover has already bounced back to levels seen before the introduction of the CAS.
The Data Behind the Shift
The report points to a recovery in the number of orders traded per day, which had hit a low in August 2026 following the initial CAS implementation. However, the industry index options premium average daily turnover has remained largely flat since the regulatory changes introduced in November 2024.
The New Rules of Engagement
Under the circular issued by SEBI on October 15, the mechanism for determining settlement values is being streamlined to ensure better price discovery:
- Expiring Index Derivatives: The settlement value will now be based on the underlying index, calculated using the volume-weighted average prices (VWAP) of constituent securities during the final 30 minutes of continuous trading in the equity cash segment.
- Expiring Stock Derivatives: Clearing corporations will determine settlement prices using the underlying stock's VWAP during the last 30 minutes of continuous trading across all stock exchanges.
These specific changes are scheduled to come into effect on December 7, 2026.
Revised Timing and Order Handling
SEBI is also introducing a structured timeline for the closing process to ensure orderly functioning:
- Closing Auction Session: A dedicated 10-minute session will run from 3:30 pm to 3:40 pm. To prevent predictability, order entry will close randomly between 3:38 pm and 3:40 pm.
- Trading Windows: Index derivatives will continue trading until 3:45 pm, though expiring contracts will stop at 3:30 pm on expiry days. Stock derivatives will maintain their trading window until 3:45 pm, even on expiry days.
Changes to Unexecuted Orders
The regulator has also addressed how pending orders are handled during the transition to the auction. Eligible pending "iceberg orders" will now move into the auction as fully disclosed limit orders, unless the participant specifically opts out when the original order is placed.
These rules regarding the transition of unexecuted limit and iceberg orders are set to take effect from February 8, 2027.
The regulator stated that this comprehensive review is aimed at ensuring efficient price discovery and the orderly functioning of both the cash and derivatives segments of the market.