The Securities and Exchange Board of India (SEBI) has put forward two alternative methodologies for determining expiry-day settlement prices of index and single-stock derivatives. This initiative comes in response to uncertainties and concerns expressed by market participants following the implementation of the new Closing Auction Session (CAS) on August 3, 2026.
Addressing Market Uncertainty
Prior to the CAS framework, expiry-day settlement prices were tied to the closing price of underlying securities, which was calculated using the volume-weighted average price (VWAP) of trades during the last 30 minutes of continuous trading. With CAS now in effect, closing prices for Futures & Options (F&O) stocks are determined via the auction, leading derivatives settlement prices to reflect these CAS-based closing figures.
SEBI noted that market participants have voiced concerns that the heightened activity in expiring index options and derivatives trading, particularly based on Indicative Equilibrium Prices (IEPs) during CAS, could introduce greater uncertainty for both option buyers and sellers regarding expiry-day settlement prices.
Option 1: The Blended VWAP Methodology
Under the first proposal, known as the “Blended VWAP” methodology, settlement prices for both index and stock derivatives would incorporate transactions from two distinct periods: the last 30 minutes of continuous trading (CTS) and the 10 minutes of CAS. SEBI intends for the contribution of CTS and CAS transactions to be dynamic, depending on their actual traded value, rather than assigning fixed weights.
This approach aims to encompass a broader spectrum of actual market transactions, allowing the relative influence of CTS and CAS to naturally emerge from market activity. The regulator believes this will provide a more representative picture of market dynamics.
Option 2: Interim Return to Pre-CAS CTS VWAP
The second proposal suggests a temporary return to the pre-CAS methodology, where only transactions executed during the last 30 minutes of continuous trading (CTS) would be used to determine expiry-day settlement prices for both index and single-stock derivatives. Under this interim arrangement, CAS transactions would not be included.
SEBI views this option as a way to provide continuity and familiarity for market participants, giving them time to adapt to the auction mechanism. It also allows for the development of sufficient liquidity and participation within CAS before a more permanent settlement methodology is adopted. Should this option be chosen, SEBI proposes considering a transition to the blended methodology only after at least one year, contingent on sufficient CAS liquidity and market familiarity.
SEBI has clarified that the CTS-based approach would be a temporary measure, not its intended long-term framework. Ultimately, the regulator's objective for both alternatives is to integrate actual transactions from both the last 30 minutes of CTS and 10 minutes of CAS into expiry-day settlement prices. The regulator is currently seeking public comments on both options as part of its ongoing consultation process.