New CAS rules decoded: What Sebi’s revised framework means for stock market traders

ETMarkets.com

The watchdog introduced the CAS earlier this year to ensure transparent and efficient price discovery for securities at the end of the trading day. However, the framework faced sharp backlash from traders, who criticised the unpredictability of price movements in stocks and indices under CAS.

The dissatisfaction prompted Sebi to seek public feedback for a review through a consultation paper released on September 12.

Here’s what Sebi has tweaked in the latest framework

According to the circular, the new timings will be 3:30 pm to 3:40 pm, while Index and stock derivatives will continue trading until 3:45 pm on regular trading days. On expiry days, expiring index derivatives will cease trading at 3:30 pm while stock derivatives will continue until 3:45 pm.

The revised 10-minute session will have three phases. The first minute, from 3.30 pm to 3.31 pm, will determine the reference price and transfer orders from the continuous trading session. Both limit and market orders can be entered between 3.31 pm and 3.36 pm. In the remaining 4 minutes, only limit orders will be accepted, while market orders cannot be modified or cancelled. The order-entry window will close at a randomly determined time between 3.38 pm and 3.40 pm.

F&O expiry settlement price reverted to VWAP method

Per Sebi, derivatives expiry settlement prices will be calculated using the Volume Weighted Average Price (VWAP) method based on the final 30 minutes of the continuous trading session from 3:00 pm to 3:30 pm.

For index derivatives, settlement prices will be based on the closing value derived using the VWAP of the constituents during this period. For stock derivatives, the settlement price will be determined using the underlying stock's VWAP over the same 30-minute window across exchanges. The regulator said exchanges will also publish live indicative index VWAP values during this period.

What about pending orders?

The revised rules also clarify how pending orders will be transferred from the continuous trading session to the closing auction. Unexecuted limit orders will generally be carried forward, excluding stop-loss orders and orders priced outside the applicable auction price bands.

Iceberg orders, which are large orders automatically split into small limit orders to hide the total true position amount, that remain unexecuted and fall within the permitted price bands will be converted into fully disclosed limit orders, unless market participants choose to opt out when placing the original order.

Orders carried over from the continuous trading session will receive higher time priority than limit orders placed during the auction. However, transferred iceberg orders will rank below other limit orders carried forward from the continuous session. These iceberg orders can be modified during the auction, but any modification will change their time priority.

The regulator has directed stock exchanges and clearing corporations to revise their standard operating procedures in consultation with the regulator within seven days of the circular's issuance. They must also put the necessary systems in place to implement the updated framework.

Global brokerage Jefferies says the revised framework should reduce expiry-day volatility under the Closing Auction Session (CAS), benefiting brokers whose orders remain below pre-CAS levels. "With premium turnover for exchanges back to pre-CAS levels, earnings upside may be limited for capital market stock.”

Under the revised framework, the CAS will operate from 3.30 pm to 3.40 pm on all trading days. Most changes will come into effect on December 7, 2026, while the rules for transferring unexecuted limit and iceberg orders from the continuous trading session will take effect on February 8, 2027.