SEBI to Revamp Closing Auction Session Framework to Address Expiry Day Volatility — October 15, 2026

The Securities and Exchange Board of India (SEBI) is finalizing comprehensive guidelines to overhaul the Closing Auction Session (CAS) framework and recalibrate the methodology used for calculating derivative contract settlement prices on expiry days.

Speaking at industry events, SEBI Chairman Tuhin Kanta Pandey confirmed that the regulator is reviewing feedback gathered from market participants and will soon publish revised operational guidelines. The initiative comes in the wake of mounting trader concerns over sharp end-of-session swings and thin auction liquidity observed during weekly and monthly derivative expiries.

Scrutiny on Closing Auction Mechanics

The Closing Auction Session was introduced to modernize cash equity closing-price discovery and align the Indian bourse infrastructure with mature global markets. However, the initial rollout faced friction, with thin institutional participation in the closing window occasionally exacerbating price distortion in index components. Because the final cash closing prices feed directly into the settlement values of cash-settled futures and options contracts, abrupt closing-minute moves created substantial volatility for market participants.

SEBI had initiated public feedback on proposed amendments covering CAS procedures, execution windows, and expiry settlement calculations. The regulator received a massive response from the domestic trading ecosystem, drawing tens of thousands of comments from brokers, institutional funds, proprietary trading desks, and retail derivative traders.

Key Objectives of the CAS Review:

• Improving liquidity and depth during the auction window to prevent abnormal spikes in heavyweight underlying stocks.
• Refining the formula used to derive final settlement prices for index and single-stock derivatives on contract expiration sessions.
• Preventing order spoofing and suspected manipulative conduct during the pre-close matching phase.
• Enhancing institutional and broker participation across both the National Stock Exchange (NSE) and BSE.

Broader Regulatory Reforms Underway

Beyond the CAS revisions, Chairman Pandey outlined several market structure updates aimed at reducing operational friction and lowering compliance costs:

Broader Reforms in the Pipeline:

• Interoperability Expansion: SEBI is targeting implementation to bring transactions such as tender offers, share buybacks, and offers for sale (OFS) under the clearing corporation interoperability framework, eliminating parallel clearing requirements and boosting capital efficiency.
• Digital Onboarding for Overseas Investors: Simplified digital KYC and onboarding routes for Persons Resident Outside India (PROIs) and Non-Resident Indians (NRIs) are in the pipeline, removing the mandate for physical presence.
• Proportionate Broker Compliance: The regulator is exploring a graded compliance architecture that calibrates regulatory demands to a brokerage's size, technological dependency, and customer exposure.

What It Means for Traders and Investors

For market participants in India, the impending guidelines on CAS are expected to deliver a fairer and more resilient closing mechanism. By tightening the calculation of expiry-day benchmark settlement prices, SEBI aims to eliminate rogue closing prints, reduce slippage for institutional passive funds tracking closing benchmarks, and safeguard retail derivatives participants from volatile price dislocations in the final minutes of trade.

Tags: SEBI NSE BSE Derivatives Stock Market India