SEBI Chief Tuhin Kanta Pandey Affirms Regulator Will Address Expiry Settlement Volatility Under Closing Auction Session — September 22, 2026

Speaking at the 11th J.P. Morgan India Conference in Mumbai on September 22, 2026, Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey confirmed that the regulator is actively addressing market participants' concerns regarding expiry-day derivative settlement prices.

Pandey underscored that while the Closing Auction Session (CAS) has been established as an essential market structure reform and is here to stay, the settlement pricing mechanism for futures and options contracts on expiry days is undergoing targeted revisions.

Roots of Market Disquiet

The regulatory rethink follows widespread market unease after the rollout of CAS in the equity cash segment on August 3, 2026. The mechanism was introduced to aggregate buy and sell interest into a single liquidity pool during the closing minutes, aligning Indian market structures with global best practices and reducing tracking errors for passive funds.

Under the framework, closing prices discovered through the 10-minute auction were also designated as the basis for settling cash-settled index and stock derivatives at expiry. However, market participants reported elevated volatility and unpredictable swings in expiring index contracts during the auction window. The interaction between Indicative Equilibrium Prices (IEPs) in cash equities and frantic options trading near the close created significant settlement uncertainty for both option buyers and sellers.

Dual Proposals Under Review

In response to industry representations, SEBI issued a formal consultation paper on September 12, 2026, outlining two alternative methodologies for determining derivative settlement prices on expiry days:

• Blended VWAP: Calculating expiry settlement prices using a combination of trades executed during the final 30 minutes of the Continuous Trading Session (CTS) and the 10-minute CAS window, without assigning fixed weightings.
• Reversion to CTS VWAP: An interim return to the pre-CAS methodology, relying solely on the volume-weighted average price (VWAP) of the last 30 minutes of continuous trading, thereby unlinking CAS prices from derivative settlement for at least one year.

Public and institutional feedback on the consultation proposals remains open until October 3, 2026.

Refining the Auction Mechanism

Alongside settlement price calculations, SEBI has proposed operational guardrails to prevent order spoofing and unnecessary price distortions during the closing minutes.

Key Operational Adjustments Under Consideration:

• Barring market participants from cancelling auction orders placed beyond a 1% band from the reference price.
• Reducing the post-auction derivatives trading window from 10 minutes to five minutes.
• Halting the dissemination of estimated indicative index closing levels during the auction session to prevent speculative runs.

Deepening the Broader Ecosystem

Addressing institutional delegates, Pandey noted that execution under CAS had demonstrated robust technical resilience during major index events, including recent MSCI rebalancing exercises. He emphasized that the regulator's objective is to retain the benefits of auction-based closing discovery while removing unintended friction in the derivatives segment.

Pandey also noted that SEBI will continue advancing reforms to deepen India's cash market through expanded retail and institutional participation, improved securities lending and borrowing (SLB) mechanisms, and enhanced efficiency in hedging and arbitrage interactions between cash and derivatives segments.

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