SEBI proposes changes to derivatives settlement, closing auction timings; seeks public comments

Mumbai (Maharashtra) [India], September 12 (ANI): The Securities and Exchange Board of India (SEBI) has proposed changes to the settlement methodology for derivatives contracts, market timings and certain operational aspects of the Closing Auction Session (CAS).
The proposals come after market participants raised concerns and observations emerged during the initial phase of CAS implementation, particularly around settlement-price computation, the transition from continuous trading to the auction session, indicative prices and the interaction between cash and derivatives markets.
In a consultation paper issued on Saturday, SEBI proposed two options for determining the settlement price of index and single-stock derivatives on expiry days.
Under Option 1, SEBI proposed a “Blended VWAP” methodology. The settlement price would be calculated using trades executed during the last 30 minutes of the Continuous Trading Session (CTS) and the 10-minute CAS period. The contribution of each period would be based on its actual traded value, rather than a fixed weighting.
The regulator said the proposed methodology would capture a broader period of actual market transactions and could provide a more representative basis for determining the settlement price, particularly in the context of the experience gained after CAS was introduced on August 3.
Under Option 2, SEBI proposed continuing with the existing CTS VWAP methodology as an interim arrangement. Under this option, the settlement price would be based only on trades executed during the last 30 minutes of CTS.
SEBI said the blended methodology could be considered after at least one year, subject to adequate liquidity, participation and familiarity with CAS.
The regulator also proposed that the Indicative Index Value (IIV), derived from Indicative Equilibrium Prices (IEPs), should not be displayed during CAS. However, security-level IEPs would continue to be provided.
SEBI noted that IEPs are indicative and evolving values and do not represent prices at which actual trades have taken place. It said the IIV was being misinterpreted by some stakeholders, leading to positions being taken based on the indicative value.
On market timings, SEBI proposed two alternatives.
Under Option A, CTS for CAS stocks would continue until 3:30 pm, followed by CAS from 3:31 pm to 3:40 pm. Derivatives trading would continue until 3:45 pm.
Under Option B, CTS would continue until 3:15 pm, CAS would be held from 3:15 pm to 3:25 pm, and derivatives trading would continue until 3:30 pm.
Both options propose reducing the transition time between CTS and CAS from five minutes to up to one minute. The post-CAS derivatives trading window would also be reduced from 10 minutes to five minutes.
SEBI said feedback from market participants indicated that a shorter trading window after CAS would be sufficient.
The regulator has also sought comments on restricting the cancellation of limit orders placed beyond ±1 per cent of the reference price during CAS. Price-improving modifications would continue to be allowed within the existing ±3 per cent price band.
Another proposal seeks to allow unexecuted Iceberg orders at the end of CTS to be converted into normal limit orders. The entire pending quantity would then be disclosed in the CAS order book.
SEBI said the proposals aim to improve price discovery, provide greater clarity to market participants and ensure a more orderly interaction between the cash and derivatives markets.
Public comments on proposals have been invited until October 3, 2026, through SEBI’s public-comment mechanism. Comments can also be sent by email to mrdcas@sebi.gov.in. (ANI)