SEBI to Soon Issue Revised Closing Auction Session Framework After Receiving Over 3500 Comments

Capital markets regulator Securities and Exchange Board of India (SEBI) is set to issue a finalized framework on proposed modifications to the Closing Auction Session (CAS) mechanism shortly, having received more than 3,500 comments on its consultation paper.

Speaking at an event organised by the Commodity & Capital Market Participants Association of India (CPAI), SEBI Chairman Tuhin Kanta Pandey confirmed that the regulator will swiftly evaluate market feedback and proceed with the circular, noting that the consultation deadline concluded on October 3.

"Today is the last date, and we will actually quickly look at all these comments and go ahead, because I think our proposals are quite clear," Pandey said, affirming that the regulator would not require extensive time to compile and analyse the submissions before issuing a circular.

Drivers Behind the CAS Review

SEBI introduced the Closing Auction Session in the equity cash segment on August 3, 2026, specifically for stocks eligible for futures and options (F&O) trading. The auction mechanism was rolled out to align Indian bourses with global price-discovery standards and facilitate smoother execution during large benchmark rebalancing events, such as MSCI index reviews.

However, following its rollout, several proprietary desks, retail traders, and brokers raised concerns regarding expiry-day volatility. Because the closing price determined through CAS was utilized as the settlement price for derivatives contracts, sudden order adjustments and liquidity imbalances during the auction window led to sharp swings in expiring options and futures contracts.

Key Proposals Under Consideration

In its September consultation paper, SEBI laid out specific adjustments designed to address the impact of auction discovery on derivatives settlement without dismantling the auction framework altogether:

• Derivatives Settlement Methodology: SEBI proposed evaluating alternatives for calculating expiry-day settlement prices for stock and index derivatives, including retaining the traditional Continuous Trading Session (CTS) Volume Weighted Average Price (VWAP) or transitioning to a blended VWAP model over a phased period.
• Distinction of Pricing Metrics: Greater technical distinction among the Indicative Equilibrium Price (IEP) generated during the session, the final equity cash closing price, and the final settlement price for derivatives.
• Auction Timings and Structure: Fine-tuning the trading and auction windows between 3:20 PM and 3:30 PM to manage surging trading volume and mitigate abrupt order imbalances.

Pandey reiterated that while CAS remains a permanent fixture of India's market infrastructure, the upcoming regulatory directions will balance institutional execution requirements with orderly expiry-day settlement across NSE and BSE.

Tags: SEBI NSE BSE Tuhin Kanta Pandey Derivatives Market Capital Markets