SEBI proposes new derivative settlement methods after closing-auction concerns
Where it stands
The Securities and Exchange Board of India issued a consultation on closing auctions and derivative settlement on 12 September 2026. After sharp swings during the new auction system, SEBI is considering how expiry-day prices should be calculated. One option combines trades from continuous trading and the closing auction. Another initially uses only the last 30 minutes of continuous trading. The proposals also cover market timings, displayed index values and order cancellations. Comments are due by 3 October 2026. These are proposed changes: the consultation does not itself replace current trading hours or rewrite the rules for existing contracts.
Background
A stock’s closing price is used beyond the last share trade: it also helps determine index values and derivative settlement. Before closing auctions, prices were based on a weighted average of late-session trades. The auction instead gathers orders and finds a price at which they can be matched. While orders accumulate, the indicated price can move even though those trades have not happened. Derivatives continue trading during this period, so changing indications can affect traders’ decisions. The review asks how to retain an auction while reducing uncertainty around the prices used when contracts expire.
How it developed
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16 January 2026 to 3 August 2026How it started
Sebi replaced the 30-minute average with a closing auction
Sebi issued the CAS circular on 16 January 2026. Before CAS, the closing price was the VWAP of trades in the last 30 minutes. Sebi said this method could distort prices when large orders came near the close. Sebi also said most major markets abroad use a closing auction. CAS runs from 3:15 pm to 3:35 pm on every trading day. The exchange matches orders at one equilibrium price. Prices in CAS can move only 3 per cent from a reference price. CAS applies first to stocks with derivative contracts. The circular also changed derivative settlement prices. Index contracts now settle at the index closing value based on CAS closing prices. CAS started on 3 August 2026.
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12 August 2026Official response
Sebi chairman says no manipulation seen in the closing auction
On 12 August 2026 Sebi chairman Tuhin Kanta Pandey spoke at an event in Mumbai. Pandey said Sebi had seen no manipulation in CAS. Pandey called CAS a big market structure reform in line with global standards. Pandey said Sebi was willing to tweak the system if needed. Pandey said mutual fund participation in CAS had risen to about 20 to 25 per cent.
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19 August 2026New fact
Sebi bars two entities for manipulative orders during CAS
On 19 August 2026 Sebi passed an interim order against two entities. Sebi named Copthall Mauritius Investment Limited and Mansi Share and Stock Broking Private Limited. Sebi said the two placed and cancelled large orders during CAS on 13 August 2026, a Sensex options expiry day. Sebi said the orders moved the indicative Sensex value to help the two entities' options positions. Sebi impounded about Rs 3.68 crore of alleged gains. Sebi restrained both entities from the securities market until further orders.
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27 August 2026New fact
Sensex falls about 2,000 points during CAS on first monthly expiry
On 27 August 2026 the Sensex traded above 77,100 until 3:15 pm. During CAS the indicative Sensex value fell to below 75,000. The Sensex then recovered to close at 76,933.6, down 539 points. A 76,900 Sensex put option rose from Rs 4.70 to Rs 200 during CAS. The same option expired at zero. Sebi chairman Pandey said the same day that Sebi was not looking at any changes.
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3 September 2026Official response
Sebi promises a consultation paper on settlement prices within a week
On 3 September 2026 Sebi issued press release No. 53/2026 in Mumbai. Sebi said the closing price from CAS serves as the basis for derivative settlement prices on expiry. Sebi said a major area of feedback related to these settlement prices on expiry day. Sebi may propose changes in the method for settlement prices of derivative contracts. Sebi said a consultation paper will be issued in about a week. Sebi did not announce any change to CAS itself.
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12 September 2026Official response
Two settlement approaches are offered for public comment
The 12 September consultation follows SEBI’s earlier promise to review expiry-day settlement. One option blends trades from the last 30 minutes of continuous trading with 10 minutes of the closing auction. Their contributions would reflect actual traded value, rather than a fixed split. The alternative initially uses only the continuous-trading average. A later move to the blended method could be considered after at least a year of auction experience. That transition is not automatic. Comments are invited until 3 October 2026; neither option has been made the new rule by this consultation.
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12 September 2026; same consultationNew fact
Proposed safeguards address misleading signals and disappearing orders
SEBI also proposes stopping publication of the auction-derived indicative index value while retaining indicative prices for individual stocks. This separates a tentative calculation from completed trading. The existing 3% price band would remain. Orders within 1% of the reference price could be cancelled; those beyond 1% and up to 3% could not. The latter could still be changed to improve the price. Alternative trading schedules are also proposed, not implemented. Existing stocks and contracts therefore remain subject to the applicable rules until a final change takes effect; the paper does not abolish closing auctions.
Why it matters for UPSC
For GS3, explain how market design affects price discovery and investor protection. Distinguish an indicative auction price from an executed trade, and a share’s closing price from a derivative settlement benchmark. Consultation allows feedback before a final decision; it does not itself change existing contracts or trading hours.
Key terms
Sources (14)
- Securities and Exchange Board of India · official · Introduction of Closing Auction Session (CAS) in the Equity Cash Segment and certain modifications in the Pre-Open Auction Session (circular, 16 January 2026)3 Sep, 10:00 pm
- Business Standard · SEBI changes closing price calculation methodology for equity cash segment (17 January 2026)3 Sep, 10:00 pm
- Business Standard · Sebi sees no manipulation in closing auction session: Tuhin Kanta Pandey (Reuters copy, 12 August 2026)3 Sep, 10:00 pm
- The Federal · No manipulation observed in closing auction sessions: Sebi Chairman (PTI copy, 12 August 2026)3 Sep, 10:00 pm
- Securities and Exchange Board of India · official · Ex-Parte Interim Order in the matter of manipulative trades during CAS on SENSEX expiry at BSE, August 13, 2026 (order dated 19 August 2026)3 Sep, 10:00 pm
- Business Standard · Sebi's swift action against JPMorgan unit seen as warning to traders (Bloomberg copy, 21 August 2026)3 Sep, 10:00 pm
- Business Today · SEBI flags prima facie manipulation in Sensex closing auction session, blocks two entities (19 August 2026)3 Sep, 10:00 pm
- Business Standard · Sensex sees sharpest late-session fall since closing auction rollout (27 August 2026)3 Sep, 10:00 pm
- ThePrint · Meant to improve end-of-day prices, India's new closing-auction system is producing extreme swings (Bloomberg copy, 28 August 2026)3 Sep, 10:00 pm
- Securities and Exchange Board of India · official · SEBI to review Settlement Price methodology for Derivative Contracts in the light of CAS rollout (PR No. 53/2026, 3 September 2026)3 Sep, 10:00 pm
- Business Standard · Sebi to review CAS methodology for derivative contract settlement prices (3 September 2026)3 Sep, 10:00 pm
- SEBI · official · Official news listing: 12 September consultation on closing auctions, market timings and derivative settlement
- Business Standard · SEBI proposes changes to derivative settlement and closing auctions
- CNBC-TV18 · SEBI proposes changes to CAS across settlement, market timings and order rules