Archive · 21 Sep 2026
SEBI Proposes Cash Auction Rules Amid Derivatives Expiry Volatility
SEBI started a special closing auction for some stocks on August 3.
This auction helps find a fair final price for stocks.
During the auction, cash-market trading pauses, but futures and options keep trading.
Traders have been using changing estimated index prices, which has caused confusion and volatility.
SEBI wants to stop displaying estimated index values during this period.
It also wants to make it harder to cancel orders placed far from the reference price.
On expiry days, SEBI may combine prices from regular trading and the auction.
The article says this could make final prices more reliable.
It also says excessive retail speculation in weekly index options remains a serious concern.
SEBI introduced a closing auction session in the cash segment from August 3 for stocks linked to derivatives.
The cash auction has operated smoothly, but futures and options have shown greater volatility, especially on expiry days.
SEBI proposed hiding indicative index values during the auction while continuing to display indicative stock values.
The regulator proposed restricting cancellation of limit orders placed more than 1% from the reference price.
A proposed blended expiry settlement price would combine the final 30-minute VWAP with the cash auction equilibrium price.
- Who
- The Securities and Exchange Board of India (SEBI), exchanges, derivative traders, passive funds, and retail investors.
- What
- SEBI proposed changes to the closing auction session and expiry-day settlement rules after volatility emerged in futures and options.
- When
- The closing auction began on August 3; the article was published on September 21, 2026.
- Where
- In India’s cash and equity derivatives markets.
- Why
- To reduce confusion, possible manipulation, and volatility during the auction, and to improve expiry-day settlement prices.
Immediate safeguards
Delayed implementation
Blended expiry settlement
Immediate safeguards
Implement the blended settlement price now so prices reflect both regular trading and the closing auction, with greater weight given to the higher-volume session.
Delayed implementation
Defer implementation of the blended settlement price for a year while participants gain more experience with the new auction mechanism.
Indicative index values
Immediate safeguards
Stop displaying indicative index values during the auction because they can change as orders are added or cancelled and may mislead derivative traders.
Delayed implementation
Continue displaying the values, as derivative traders may use them as information while trading continues during the cash auction.
Retail speculation
Immediate safeguards
Address heavy retail speculation in weekly index options on expiry days because retail investors are described as especially vulnerable to losses.
Delayed implementation
The article does not present a specific alternative measure, but notes that weekly index-option trading continues despite concerns about its effect on market credibility.
- Regulator
- Securities and Exchange Board of India (SEBI)
- Auction start
- August 3
- Cash auction window
- 3:15 p.m. to 3:35 p.m.
- Index derivatives share
- Index options account for around 94% of equity derivatives contracts.
- Order-cancellation proposal
- Limit orders placed more than 1% away from the reference price could not be cancelled.
- Proposed settlement method
- A blended price using the last 30 minutes’ volume-weighted average price and the closing auction equilibrium price.
- Main concern
- Excessive retail speculation in weekly index options on expiry days.