SEBI has proposed changes to the way expiry-day settlements are calculated for futures and options (F&O) stocks in India’s securities market. The Securities and Exchange Board of India issued a consultation paper on September 12, 2026, covering changes to the Closing Auction Session (CAS), settlement prices, market timings and price-discovery mechanisms.

The proposals are aimed at improving the way prices are determined around the end of the trading day, especially on expiry days when trading activity in derivatives can increase sharply. SEBI has invited public comments on the proposed changes until October 3, 2026.

What Is the Closing Auction Session?

The Closing Auction Session (CAS) is a market mechanism used to determine the closing price of securities through an auction-based order matching process.

SEBI introduced the CAS framework for F&O stocks on August 3, 2026. The system was designed to improve price discovery close to the end of the regular trading session.

During an auction session, buy and sell orders are matched according to specified rules to arrive at a price that can be used as the closing price. The process is different from normal continuous trading, where orders are matched throughout the trading session.

The new consultation paper proposes adjustments to the CAS framework based on market experience after its introduction.

New Proposal for Expiry-Day Settlement

One of the key proposals from SEBI concerns the calculation of settlement prices for F&O stocks on expiry days.

SEBI has proposed a Blended Volume-Weighted Average Price (VWAP) method. Under this approach, the settlement price would be calculated using trading data from the final 30 minutes of the Continuous Trading Session (CTS) along with 10 minutes of the Closing Auction Session.

VWAP is a price calculation that gives greater importance to trades involving higher volumes. It is widely used as a benchmark in financial markets.

By combining data from continuous trading and the closing auction, SEBI is looking at a method that could provide a broader representation of trading activity near market close.

Existing VWAP Method May Continue

The consultation paper also presents an alternative approach. Under this option, the existing CTS VWAP method would continue to be used.

The current approach calculates the settlement price using trades during the final 30 minutes of continuous trading before the CAS. Under the alternative proposal, the blended approach could be introduced only after at least one year.

This gives market participants two possible approaches and allows stakeholders to provide feedback before SEBI takes a final decision.

Changes to Market Timings

The SEBI consultation paper also examines possible changes to market timings.

The regulator has presented two options covering the duration of the Continuous Trading Session, the Closing Auction Session and derivatives trading sessions. The aim is to create a suitable structure for trading and settlement while ensuring that the transition between different sessions is efficient.

SEBI has also proposed a shorter transition period between the Continuous Trading Session and the Closing Auction Session.

A smooth transition is important because trading conditions can change quickly near the end of the market session, particularly on days when derivatives contracts expire.

Changes to Indicative Price Information

Another proposal concerns the price information displayed during the Closing Auction Session.

SEBI has suggested stopping the display of the Indicative Index Value during CAS. At the same time, Indicative Equilibrium Prices for individual securities would continue to be displayed.

Indicative equilibrium prices provide market participants with information about the price at which orders could potentially be matched during an auction. Continuing to provide this information for individual securities can help traders understand the developing price-discovery process.

Why Expiry-Day Settlement Matters

Expiry days are important in the derivatives market because futures and options contracts reach their scheduled expiry. Trading volumes and price movements can sometimes increase around this period.

The method used to calculate settlement prices can therefore have a direct effect on the final value of derivatives contracts.

The SEBI proposals focus on making the settlement process more representative of actual trading activity near the end of the session. Including both continuous trading and auction-session data in the blended VWAP method is one of the regulator’s key ideas.

SEBI Will Continue the CAS Framework

SEBI Chairman Tuhin Kanta Pandey said on September 10, 2026, that the Closing Auction Session will continue and will not be rolled back.

The statement comes after concerns and discussions around liquidity during expiry-day trading. Instead of cancelling the CAS framework, the regulator is considering adjustments to its operation and settlement methodology.

SEBI has also kept temporary solutions under consideration to address liquidity-related concerns in expiry-day trading.

Balancing Price Discovery and Liquidity

The proposals show the regulator’s effort to balance two important aspects of the market: accurate price discovery and sufficient liquidity.

Price discovery means finding a fair market price based on buying and selling interest. Liquidity refers to how easily securities or contracts can be bought or sold without causing a large change in price.

The CAS framework is intended to improve price discovery near the market close, while the proposed changes are aimed at making the overall process more effective for participants.

Public Consultation on Proposed Changes

The latest SEBI consultation paper is open for public feedback until October 3, 2026. Market participants, investors and other stakeholders can provide their views on the proposed settlement methodology, market timings and CAS-related changes.

The final framework will depend on SEBI’s review of the feedback received during the consultation process. The proposals indicate that the regulator is continuing to refine India’s market structure as trading patterns and derivatives activity evolve.