15 hrs ago
SEBI CAS Overhaul Faces Preference for Familiar Derivatives Settlement
India’s market regulator wants to change how prices are set when derivatives expire.
It is considering combining prices from regular trading and a closing auction.
The other choice is to keep using the familiar price from the last 30 minutes of regular trading for at least one year.
Some experts support switching to the combined method immediately.
Others think the auction needs more trading activity before it can be used for settlements.
Several market participants prefer the older method because it is easier to understand and use.
The regulator also wants to remove an estimated index value that may cause confusion and volatility.
It wants to limit some order cancellations that could make buying and selling activity look misleading.
It also proposed new auction times and rules for iceberg orders.
SEBI proposed either immediately blending final-30-minute VWAP with 10-minute CAS prices or retaining the existing VWAP for at least a year.
Several market participants preferred the familiar final-30-minute VWAP, citing its simplicity and established use.
Chandan Taparia supported moving directly to blended VWAP, while other experts said CAS liquidity and participation must improve first.
SEBI proposed removing indicative index values and restricting cancellations of limit orders placed 1%-3% from the reference price.
Other proposals include allowing unexecuted iceberg orders into CAS and scheduling the auction from either 3:15-3:25 p.m. or 3:30-3:40 p.m.
- Who
- The Securities and Exchange Board of India (SEBI), derivatives traders, brokers, and market experts including Venkatachalam Shunmugam, Chandan Taparia, Feroze Azeez, Uttam Bagri, Trivesh Dinesh, and Anand James.
- What
- SEBI proposed changes to closing-auction operations and two possible methods for settling index and single-stock derivatives on expiry days.
- Where
- India’s securities markets, including the closing auction session for index and single-stock derivatives.
- When
- The consultation paper was released on a Saturday; one article was published on September 13, 2026, and one proposed interim settlement period would last at least one year.
- Why
- To improve price discovery, reduce volatility and potentially manipulative order behavior, and determine whether auction prices should play a larger role in derivatives settlement.
Move Directly to Blended VWAP
Retain Familiar VWAP First
Settlement methodology
Move Directly to Blended VWAP
Chandan Taparia said moving directly to blended VWAP could reduce sharp expiry-day index swings and encourage participation in CAS.
Retain Familiar VWAP First
Several participants, including Uttam Bagri and Trivesh Dinesh, preferred retaining the final-30-minute VWAP because it is transparent, simple, consistent, and familiar.
CAS readiness
Move Directly to Blended VWAP
Supporters of immediate blending said SEBI intends to retain CAS, so delaying the change by a year may serve little purpose.
Retain Familiar VWAP First
Venkatachalam Shunmugam and Anand James said CAS liquidity and volumes need to improve, with greater participation and possible market-structure changes, before auction prices take a larger settlement role.
Complexity and risk management
Move Directly to Blended VWAP
A blended approach could combine information from both trading periods and reduce dependence on potentially volatile expiry-day movements.
Retain Familiar VWAP First
Critics said relying on two different trading mechanisms could make settlement more complex, while continuous-trading prices may be easier for derivatives traders to use for risk management.
Key facts
- Regulator
- Securities and Exchange Board of India (SEBI)
- Immediate settlement option
- Blend prices from the final 30 minutes of continuous trading and the 10-minute closing auction, weighted by traded value.
- Interim settlement option
- Continue using the final 30-minute continuous-trading VWAP for at least one year before reviewing CAS liquidity and participant familiarity.
- Market preference
- Several participants and trader or sub-broker forums preferred retaining the familiar VWAP because it is simpler and established.
- Indicative index value
- SEBI proposed discontinuing its dissemination because investors may mistake an evolving indication for an actual index level.
- Cancellation rule
- Limit-order cancellations would remain allowed within 1% of the reference price but be barred in the 1%-3% range.
- Auction schedules
- SEBI proposed either 3:15-3:25 p.m. or 3:30-3:40 p.m., followed by a one-minute transition and five minutes before derivatives trading ends.
- Iceberg orders
- Unexecuted iceberg orders could enter CAS with their entire remaining quantity disclosed.
Quotes
Venkatachalam Shunmugam
Former head of research and administration at MCX
“The objective should be to have a settlement methodology that is transparent, easy to understand, and consistent for all market participants.”
thehindubusinessline.com
“Sebi will have to take substantial measures to strengthen liquidity and enhance supervision during CAS to increase participation.”
financialexpress.com
Feroze Azeez
Joint CEO at Anand Rathi Wealth
“The indicative prices were creating volatility without any actual trades taking place. We saw the Sensex indicative level move by thousands of points based on orders that were never executed.”
thehindubusinessline.com
“The issue was not the ±3 per cent band itself... Making orders beyond 1 per cent more binding tackles the real problem by reducing the scope for such manipulation.”
thehindubusinessline.com
Sources
Related news
SEBI Proposes Blended Derivatives Pricing and Closing Auction Changes
SEBI Weighs Expiry-Day Settlement Prices as Expert Favors VWAP
Market Experts Back Sebi Reforms to Curb Expiry-Day Volatility
SEBI Reviews Derivatives Settlement Methodology After CAS Volatility
Experts Propose Hybrid Settlement to Curb Closing Auction Volatility
SEBI May Revise Closing Auction Settlement Rules After Volatility
Motilal Oswal Sees 27% Upside for Indraprastha Gas
Crude Tops $100 as RBI Rate-Hike Pressure Intensifies
Indian Bank Credit Growth Hits Decade High in August
NSE Sets September IPO as It Seeks Broader Revenue Base
