SEBI Set to Partially Roll Back Derivative Settlement Pricing Rules Following Expiry Day Volatility — October 5, 2026

India’s capital markets regulator is set to partly reverse its recently introduced framework for determining the expiry settlement prices of equity derivatives after intense pushback from market participants over sharp price swings.

Under the anticipated revisions, the Securities and Exchange Board of India (SEBI) is expected to suspend the use of the Closing Auction Session (CAS) for calculating derivative settlement prices for at least one year. The regulator plans to instead determine expiry-day derivative settlement prices using the volume-weighted average price (VWAP) of trades executed during the final 30 minutes of the Continuous Trading Session (CTS).

Auction Retained for Cash Market Equities

While derivatives settlement will decouple from the closing auction, the regulator will maintain the CAS mechanism to determine end-of-day closing prices for underlying stocks in the cash segment.

SEBI introduced the Closing Auction Session on August 3 for equities with linked futures and options (F&O) contracts to align India’s market infrastructure with international bourses in the United States and Hong Kong. However, bundling the closing auction with derivative contract settlements on expiry days triggered concentrated order flows and sharp price anomalies during the final minutes of trade.

Key Elements of the Proposed Framework:

• Derivatives Settlement Decoupling: Derivative contracts on expiry will no longer settle at the final CAS-discovered price.
• Reversion to CTS VWAP: Settlement values will be calculated based on the volume-weighted average price across the final 30 minutes of continuous trading.
• One-Year Transition Window: The CTS VWAP methodology will serve as an interim standard for at least 12 months before any potential transition to a blended settlement model.
• Cash Market Unchanged: The call auction will continue to determine the official closing prices of underlying cash market equities.

Overwhelming Response to Consultation

SEBI previously floated a consultation paper proposing two primary alternatives: maintaining the traditional CTS VWAP or adopting a "Blended VWAP" that combines transactions from the final 30 minutes of continuous trading with the 10-minute CAS window.

The consultation drew widespread attention across the brokerage and trading ecosystem, generating over 20,000 public comments and suggestions. Speaking recently at an industry conference, SEBI Chairman Tuhin Kanta Pandey affirmed that the regulator intended to address market participants' concerns regarding expiry volatility swiftly.

The official circular outlining the revised settlement rules is expected to be issued by the end of October. For proprietary desks, institutional hedgers, and retail F&O traders, the return to a 30-minute VWAP benchmark removes the unpredictability of single-auction closing shocks, restoring a more dispersed pricing structure on expiry afternoons.

Tags: SEBI NSE BSE F&O Derivatives Market