SEBI Panel Backs 30-Minute VWAP Settlement for Derivatives as Market Pushes Back Against Closing Auction Pricing

In a significant relief to traders and domestic brokerages, a Securities and Exchange Board of India (SEBI) advisory panel has recommended retaining the traditional 30-minute Volume-Weighted Average Price (VWAP) methodology for determining expiry-day settlement prices in stock and index derivatives, stepping back from the full application of the Closing Auction Session (CAS) for contract settlement.

The recommendation follows extensive market feedback, including nearly 20,000 public responses to a consultation paper issued by SEBI on September 12, 2026. Participants overwhelmingly highlighted that calculating derivatives expiry settlements based on the Indicative Equilibrium Price (IEP) generated during the CAS led to sharp price swings, lower liquidity, and severe execution risks in the final hour of trade.

Pushback Against the Closing Auction Framework

The regulator initially rolled out the Closing Auction Session on August 3, 2026, across the futures and options (F&O) universe to improve cash-market closing price discovery and align domestic bourses with global exchanges like the NYSE and LSE. However, the shift triggered unintended disruption on expiry days.

Traders noted that index prices frequently fluctuated by around 1% during the auction window due to concentrated order imbalances and low liquidity, making it exceedingly hazardous for options sellers to write contracts or hold overnight positions into the close. As volumes dropped, market participants urged SEBI to decouple cash-market closing prices from derivatives settlement.

Under the panel's backed framework, the settlement price of index derivatives will continue to track the underlying index value computed using the VWAP of constituent shares between 3:00 PM and 3:30 PM during the continuous trading session. Similarly, clearing corporations will determine settlement prices for expiring stock derivatives using the 30-minute VWAP of the underlying equities across exchanges.

Key Framework and Timing Adjustments

While retaining VWAP for derivatives settlement, SEBI has refined the operating parameters for CAS in the equity cash segment, which remains intact for discovering official stock closing prices.

Major Operational Changes:

• Normal continuous trading in equities will run up to 3:30 PM, after which a 10-minute CAS will operate between 3:30 PM and 3:40 PM on all trading days.
• Between 3:30 PM and 3:31 PM, exchanges will run a reference-price calculation window using the 15-minute VWAP of continuous trade, followed by order entry for limit and market orders until 3:36 PM.
• Only limit orders will be permitted between 3:36 PM and random closure between 3:38 PM and 3:40 PM, preventing last-second cancellations.
• Normal index derivatives will trade until 3:45 PM, but expiring index contracts will halt strictly at 3:30 PM on expiry days. Stock derivatives will continue trading until 3:45 PM, including on expiry sessions.
• The post-close trading session in the cash market will operate from 3:50 PM to 4:00 PM at official closing prices.

The revised framework is slated to take effect from December 7, 2026, while provisions governing the transition of unexecuted limit and iceberg orders from continuous sessions to CAS will come into force on February 8, 2027.

Market Reaction

The outcome has been widely welcomed by the broader market, which had grappled with heightened expiry-day slippage. Capital market intermediaries rallied on the bourses following the development, with shares of BSE Ltd, Groww, and Angel One each jumping over 3% as participants anticipated the return of normal options trading volumes and reduced liquidity friction into market closes.

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