Sebi revises CAS rules, changes derivatives expiry settlement methodology

Under the revised framework, the closing auction session (CAS) will run from 3.30 pm to 3.40 pm on all trading days. The changes will take effect from December 7, 2026, except for modifications governing the transition of unexecuted limit and iceberg orders from the continuous trading session, which will come into force on February 8, 2027.

Sebi introduced the closing auction session to facilitate transparent and efficient price discovery for closing prices of securities. Following its implementation, the regulator reviewed aspects of the framework and sought public comments through a consultation paper issued on September 12.

The revised schedule divides the 10-minute auction into three phases. The first minute, starting at 3.30 pm, will be used to calculate the reference price and transition orders from the continuous trading session. Order entry for both limit and market orders will be permitted from 3.31 pm to 3.36 pm, followed by a four-minute period during which only limit orders can be entered. Market orders cannot be modified or cancelled during this final phase. The order-entry window will close randomly between 3.38 pm and 3.40 pm.

Trading in index derivatives will continue until 3.45 pm on regular trading days, but contracts expiring that day will stop trading at 3.30 pm. Stock derivatives will continue trading until 3.45 pm, including on expiry days. The post-close session in the cash market will run from 3.50 pm to 4 pm, with trades executed at the closing price of the securities.

The regulator has also revised the methodology for calculating derivatives settlement prices on expiry days. The settlement price of expiring index derivatives will be based on the value of the underlying index calculated using the volume-weighted average prices (VWAP) of its constituent securities during the final 30 minutes of the continuous trading session in the equity cash market.

For expiring stock derivatives, clearing corporations will determine settlement prices using the VWAP of the underlying stock during the final 30 minutes of the cash market session across all stock exchanges. Exchanges will provide the relevant VWAP and traded quantities to clearing corporations and continuously disseminate indicative values to market participants during this period.

The changes also specify how unexecuted orders will move from the continuous trading session into the closing auction. Pending limit orders will generally be carried forward, except stop-loss orders and orders priced outside the applicable auction price bands. Unexecuted iceberg orders within the permitted price bands will be converted into fully disclosed limit orders, unless the market participant has opted out of the transition when placing the original order.

Orders carried forward from the continuous trading session will have higher time priority than limit orders entered during the auction. However, transitioned iceberg orders will have lower time priority than other limit orders carried forward from the continuous session. Such orders can be modified during the auction, but their time priority will change following modification.

Sebi has also specified that orders placed during the closing auction will be subject to applicable margin requirements at the order level, except for limit and iceberg orders carried forward from the continuous trading session. If these carried-forward orders are modified during the auction, they will also become subject to the applicable margin requirements at the order level.

Stock exchanges and clearing corporations have been directed to amend their standard operating procedures in consultation with Sebi within seven days of the circular’s issuance and put the necessary systems in place to implement the revised framework.