The Securities and Exchange Board of India (SEBI) announced on Thursday a comprehensive revision of the Closing Auction Session (CAS) framework that will reshape how derivatives are settled and how trading windows operate in the Indian equity market. The regulator’s final circular outlines a shift to a 30‑minute volume‑weighted average price (VWAP) methodology for settlement, new session timings, and a detailed process for moving unexecuted limit and iceberg orders from the continuous trading session (CTS) into CAS.
Key changes to settlement methodology
Under the updated rules, the settlement price for index derivatives will be calculated using the VWAP of the constituent securities recorded during the final 30 minutes of the CTS, specifically from 3:00 pm to 3:30 pm, in the equity cash segment. This mirrors the approach previously used for cash‑segment pricing, but extends it to derivatives, offering a familiar and transparent reference point for market participants.
For stock derivatives that are expiring on a given day, clearing corporations will determine settlement prices by applying the VWAP of the underlying stock over the same 30‑minute window, but across all stock exchanges that list the security. Exchanges are required to supply both the VWAP and the total quantity traded to the clearing corporations, while also broadcasting indicative VWAP values to participants in real time throughout the period.
Revised trading windows and order‑entry rules
Effective 7 December 2026, CAS will run as a distinct 10‑minute session from 3:30 pm to 3:40 pm on every trading day. Within this window, the order‑entry period will close at a random point between 3:38 pm and 3:40 pm, a feature designed to reduce predictability and potential manipulation.
Trading in index derivatives will continue until 3:45 pm on regular days, but contracts that expire on the same day will cease trading at 3:30 pm. Stock‑derivative trading will also extend to 3:45 pm, including on expiry days. Following the CAS, a post‑close session for the cash segment will operate from 3:50 pm to 4:00 pm, during which trades will be executed at the closing prices of the securities.
The regulator noted that the earlier CAS, which became effective on 3 August 2026, had sparked criticism from traders over settlement price volatility, sharp price spikes, and limited liquidity. The new framework seeks to address those concerns by adopting a longer VWAP window and by providing clearer, real‑time information to participants.
Handling of unexecuted orders
Unexecuted orders will transition from CTS to CAS according to rules that take effect on 8 February 2027. Pending limit orders will generally be carried forward into CAS, except for stop‑loss orders and those priced outside the applicable CAS price bands. Iceberg orders—large orders that display only a portion of their total size—will be treated differently. If an iceberg order remains unexecuted within the price band, it will be converted into a fully disclosed limit order at a pre‑determined price, unless the original placer opted out at the time of entry. These converted orders will receive a lower time priority than other limit orders carried forward from CTS, but a higher priority than limit orders entered directly during CAS.
The existing CAS structure is a 20‑minute window from 3:15 pm to 3:35 pm. Within this period, the reference price calculation and the transition from CTS to CAS occur between 3:15 pm and 3:20 pm, during which no new orders may be entered. A five‑minute order‑entry phase follows, after which, from 3:25 pm to 3:30 pm, only limit orders are permitted and market‑order modifications or cancellations are barred. Trading then closes randomly in the final two minutes of the session.
SEBI’s consultation paper had also floated a proposal to prohibit the cancellation of limit orders placed beyond a one‑percent range of the reference price during CAS. The regulator ultimately decided not to incorporate that restriction in the final circular.
The revisions were formulated after SEBI received more than 20,000 suggestions on its consultation paper, and after deliberations by the Secondary Market Advisory Committee on Thursday. Market participants had previously expressed a preference for the 30‑minute VWAP method, citing its familiarity, transparency, and operational clarity compared with a blended mechanism that had been under consideration.
Overall, the regulator’s move aims to enhance price discovery, reduce volatility, and improve liquidity during the crucial closing phase of the trading day. By aligning the settlement process with a longer, widely accepted VWAP window and by clarifying the treatment of various order types, SEBI hopes to restore confidence among traders, brokers, and institutional investors.
The changes will be implemented in stages, with the primary settlement‑price adjustment taking effect on 7 December 2026 and the order‑transition rules becoming active on 8 February 2027. Market participants are advised to review the detailed circular and adjust their trading strategies accordingly.
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