Sebi to review derivative settlement prices after closing auction complaints
Where it stands
The Securities and Exchange Board of India (Sebi) will review the method for settlement prices of derivative contracts. Sebi announced this in a press release on 3 September 2026. Sebi will issue a consultation paper in about a week. The review follows the first month of the Closing Auction Session (CAS). CAS started on 3 August 2026. CAS fixes a stock's closing price through a 20-minute auction. The CAS closing price also fixes the settlement price of derivative contracts on expiry day. Traders complained of sharp swings during CAS on expiry days. On 27 August 2026 the indicative Sensex fell about 2,000 points during CAS. Sebi has not changed CAS. Sebi has only promised a proposal on settlement prices.
Background
Before August 2026, exchanges fixed a stock's closing price from the last 30 minutes of trading. The closing price was the volume weighted average price (VWAP) of trades between 3:00 pm and 3:30 pm. Sebi said large orders near the close could distort this price. Most large markets abroad use a closing auction instead. Sebi proposed a closing auction in consultation papers on 5 December 2024 and 22 August 2025. Sebi issued the CAS circular on 16 January 2026. Index values, mutual fund net asset values and derivative settlement prices all depend on closing prices.
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.
Why it matters for UPSC
For GS3, know Sebi as a statutory regulator under the SEBI Act, 1992. Separate two prices. The closing price is a stock's official end-of-day price. The settlement price closes a derivative contract on expiry day. Under CAS the settlement price comes from the CAS closing price. Separate a review from a rule change. A consultation paper only asks for public comments. The CAS circular of 16 January 2026 stays in force until Sebi issues a new circular.
Key terms
Sources (11)
- 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