SEBI Overhauls CAS Framework and Derivatives Settlement Norms
SEBI announces major changes to the Closing Auction Session and derivatives settlement to improve price discovery. Key changes start Dec 2026.
The Securities and Exchange Board of India (SEBI) has announced a sweeping overhaul of the Closing Auction Session (CAS) framework for the equity cash segment and revised the settlement procedures for derivatives contracts. This strategic move is designed to enhance transparent price discovery and ensure more orderly trading across both the cash and derivatives markets.
New Timeline for Implementation
The regulator has set a phased timeline for these changes to take effect. The primary modifications to the framework are scheduled to be implemented on December 7, 2026. However, specific provisions regarding the transition of unexecuted orders will come into force slightly later, on February 8, 2027.
The New 10-Minute Closing Auction Session
Under the revised architecture, SEBI is introducing a dedicated 10-minute window for the Closing Auction Session (CAS), which will run from 3:30 p.m. to 3:40 p.m. on every trading day.
To maintain market integrity, the order entry session will not end at a fixed second; instead, it will close randomly between 3:38 p.m. and 3:40 p.m. via a system-driven process.
How the CAS Session Will Function:
- Initial Minute: The session begins at 3:30 p.m. with a one-minute window dedicated to order transition and the calculation of the reference price.
- Order Entry: Following the initial minute, the session will open for the entry of market and limit orders.
- Order Transitions: Unexecuted limit orders and eligible iceberg orders from the Continuous Trading Session (CTS) will carry forward into the CAS. Notably, iceberg orders will transition as fully disclosed limit orders.
Revised Reference Price Mechanism
SEBI has streamlined how the reference price for a security is determined during the CAS. The process will be as follows:
- The primary reference will be the volume-weighted average price (VWAP) of trades executed during the final 15 minutes of the Continuous Trading Session (CTS).
- If no trades occur during those final 15 minutes, exchanges will use the day's last traded price.
- In the event that no trades were executed throughout the entire session, the previous closing price will be applied.
Major Shifts in Derivatives Settlement
The regulator has also introduced significant changes to how expiring derivatives contracts are settled on their expiry day to ensure fairness and accuracy.
Index Derivatives
The settlement price for expiring index derivatives will now be based on the value of the underlying index. This value will be calculated using the VWAP of the constituent securities during the final 30 minutes of the CTS in the equity cash segment.
Stock Derivatives
For expiring stock derivative contracts, Clearing Corporations will determine the settlement price based on the VWAP of the underlying stock during the last 30 minutes of the CTS across all Stock Exchanges.
Trading Hours and Transparency
To support these changes, SEBI has mandated that stock exchanges provide real-time dissemination of VWAP and indicative underlying values during the final 30 minutes of the CTS.
Trading Cut-offs:
- Index Derivatives: Trading continues until 3:45 p.m. on regular days, but will stop at 3:30 p.m. for contracts that are expiring on that day.
- Stock Derivatives: Trading will continue until 3:45 p.m. across all sessions.
The revised measures stem from market feedback and internal deliberations aimed at strengthening transparent price discovery and orderly trading across cash and derivatives segments.