Sebi’s revised closing auction framework raises hopes of revenue revival for brokers
Mumbai: The Securities and Exchange Board of India’s (Sebi’s) decision to revise its closing auction session (CAS) framework has raised hopes of a recovery in derivatives trading and brokerage revenues, offering relief to brokers hit by a sharp slowdown in key income streams.
Sebi revised the CAS framework on 15 October, restoring the 30-minute VWAP for settling derivatives contracts on expiry days. The changes will take effect on 7 December. The regulator’s move followed concerns that the framework, introduced on 3 August, had caused abrupt price swings and uncertainty over settlement values on expiry days, prompting market participants to flag risks to liquidity and price discovery.
The framework determines closing prices for 213 stocks traded in the futures and options (F&O) segment through an auction that established a single equilibrium closing price, replacing the final volume-weighted average price.
“The pre-CAS levels on volumes and revenue seen in Q1 FY27 will be a good indicator of where we are headed once the circular comes into action. However, one may not be able to replicate revenues from earlier since broader market factors also have an effect,” a broking official told Mint on condition of anonymity.
The auction mechanism quickly lost favour among traders. From 3 August to 30 September, volumes in the closing auction session fell 84% to 4.2 million contracts, while traded value declined 77% to ₹297.72 crore, according to NSE data.
Trading activity, however, began recovering after Sebi issued a consultation paper on 12 September proposing to roll back the framework. The rebound offered an early indication of how market volumes might respond when the revised rules take effect on 7 December.
Between 3 August and 11 September, volumes in Bank Nifty futures fell 7% to 22,691 contracts, while total traded value declined 9% to ₹3,845.53 crore, according to exchange data. By the end of September, however, volumes had recovered to 26,622 contracts, up 9.6%, while traded value rose by 4% to ₹4,408.12 crore.
Nifty futures, however, told a different story. Volumes grew 12% to 62,288 contracts in the initial period through 11 September, before momentum accelerated after the consultation paper to post a 20% gain by month-end at 66,539 contracts. Traded value expanded similarly, stepping up from a 6.4% gain before the consultation paper to an 11% increase by the end of September.
Revenue hit
At Angel One, one of India’s largest brokers, broking revenue accounted for 55% of consolidated gross revenue in the September quarter of FY27, down from 60% both a year earlier and in the preceding June quarter.
Groww experienced a similar trend. Broking operations, comprising equity derivatives, cash stocks, and commodity derivatives, contributed 68.4% of total revenue of ₹1,541 crore in the September quarter of FY27, down from 72.9% in the June quarter and 74.9% in the September quarter of FY26.
However, brokers are optimistic about a swift recovery. Two broking officials, speaking on condition of anonymity, said Sebi’s latest circular could help brokerage revenues bounce back to levels seen in the first quarter of FY27, before the original CAS framework disrupted trading activity.
“Our expectation is that it (volumes) will go back to normal in some ways. We think that from the day it becomes applicable, the normalization will be much faster. So, we don't expect it (volume) will go up. The way we are expecting is it will normalize the problem that it created,” Ishan Bansal, co-founder of Groww, said during the company’s earnings call for the September quarter of FY27, which took place before Sebi issued its latest circular in October.
Angel One is also optimistic about the regulatory changes. “The road ahead is also getting clearer with the Sebi circular yesterday evening on updates to the closing auction session. This will bring greater clarity to traders, and we expect that to create some tailwind for us,” Ambarish Kenghe, group chief executive officer at Angel One, said during the company's earnings call for the latest quarter.
Amit Majumdar, group chief strategy officer at Angel One, said, “The initial pickup in derivatives activity following the announcement is encouraging, and we expect the improvement in market participation to gather momentum over the coming months.”
Macro headwinds
However, a revival in derivatives activity may not automatically translate into a stronger top line. Over the past year, Indian equities have remained under pressure due to escalating US-Iran geopolitical tensions, weighing heavily on activity across both primary and secondary markets.
“Brokerage revenues have also been influenced by broader market conditions, including periods of heightened volatility and cautious investor sentiment. These conditions have affected trading activity and the pace of new customer acquisition. We believe a more stable market environment, alongside greater clarity in the regulatory framework, should support a gradual recovery in investor participation,” Majumdar said.
Sebi has also introduced another set of changes to CAS. The transition period from continuous trading to CAS has been shortened to one minute from five minutes previously, with CAS itself running from 3:30 pm to 3:40 pm. While index derivatives trading will continue until 3:45 pm on regular days, it will halt at 3:30 pm on expiry days.