SEBI Restores 30-Minute VWAP for F&O Expiry Settlement and Revamps Closing Auction From December 7

Capital markets regulator Securities and Exchange Board of India (SEBI) has overhauled its Closing Auction Session (CAS) framework and unwound auction-based settlement pricing for derivatives contracts, responding to severe volatility and execution chaos reported by market participants. The revised guidelines, notified via circular, take effect on December 7, 2026, with provisions regarding the transition of unexecuted orders rolling out on February 8, 2027.

Under the revised rules, SEBI is returning to the 30-minute Volume-Weighted Average Price (VWAP) calculation for expiring futures and options (F&O) contracts while restructuring the equity market close into a tightened 10-minute auction window.

Why the Rules Were Overhauled

SEBI initially introduced the Closing Auction Session on August 3, 2026, in the equity cash segment to enhance closing-price discovery. Under that framework, regular trading was cut short at 3:15 PM, and expiring stock and index derivatives contracts were settled using closing prices established during the subsequent auction.

However, the mechanism caused severe distortions on expiry days. Rather than dispersing trading activity, options trading became heavily clustered around the auction window. Regulatory data revealed that on the National Stock Exchange (NSE), the traded turnover of expiring index options spiked from ₹126 crore per minute in the final half-hour of continuous trading to ₹190 crore per minute during the auction. On the BSE, volume more than doubled from ₹141 crore to ₹289 crore per minute. Option writers faced massive unhedgeable basis risk between indicative auction prices and final settlement prices, sparking calls from domestic brokers and market participants for urgent reform. Following a consultation paper floated on September 12, 2026, and recommendations from its Secondary Market Advisory Committee (SMAC), the regulator acted to separate derivatives settlement from the cash auction.

Key Changes Effective December 7

The revamp restores regular continuous cash trading hours and decouples expiry settlement from auction-discovered closing rates:

• Derivatives Settlement Reverts to VWAP: Expiring index derivatives will settle against the index value computed from the 30-minute VWAP (3:00 PM to 3:30 PM) of its constituent stocks in the continuous trading session. Expiring single-stock derivatives will settle against the underlying stock's 30-minute VWAP calculated across exchanges.
• Continuous Trading Restored: Continuous trading in the cash market will now run until 3:30 PM instead of closing at 3:15 PM.
• Derivatives Market Timings: On regular days, index derivatives contracts will continue trading until 3:45 PM. On expiry days, trading in expiring index contracts will halt strictly at 3:30 PM, whereas non-expiring index contracts and all stock derivatives will trade until 3:45 PM.
• New 10-Minute Closing Auction Session: CAS will take place from 3:30 PM to 3:40 PM solely to determine the official closing prices of cash shares.
• Post-Close Trading Session: The post-close session in the cash market will run from 3:50 PM to 4:00 PM, allowing execution at the established closing price.

Mechanics of the New 10-Minute Closing Auction

The newly scheduled auction between 3:30 PM and 3:40 PM will function under strict phased constraints:

• 3:30 PM to 3:31 PM: A one-minute transition window dedicated to calculating the reference price and carrying over eligible pending orders from the continuous session.
• 3:31 PM to 3:36 PM: Order collection window where both limit orders and market orders can be placed, modified, or cancelled.
• 3:36 PM to 3:40 PM: A restricted order-entry phase where only limit orders may be placed. Existing market orders can neither be modified nor cancelled.
• Random Close: The order-entry phase will conclude at a randomized, system-selected moment between 3:38 PM and 3:40 PM, after which orders will be matched.

Impact on Traders and Market Infrastructure

For retail and institutional derivatives traders, reverting to a 30-minute VWAP eliminates the erratic pricing swings that plagued expiry sessions under the auction regime. Arbitrageurs and option sellers will regain the ability to track volume-weighted movements in underlying shares during the final half-hour of trading to hedge open legs accurately.

Brokers are expected to benefit from restored order placement activity, which had declined significantly below pre-CAS levels. Meanwhile, mutual funds and passive index funds will continue using the CAS-discovered 3:40 PM price for net asset value (NAV) benchmarking and end-of-day equity valuation, keeping cash price discovery orderly while shielding the derivatives complex from unwarranted disruption.