Market regulator plans to review expiry settlement rules following concerns around the new Closing Auction Session.
Shares of BSE Ltd rose nearly 5% on September 4 after the Securities and Exchange Board of India (SEBI) said it would review the methodology used to determine settlement prices for derivative contracts. The move follows feedback from market participants after the introduction of the new Closing Auction Session (CAS) in the equity cash market.
The development has drawn investor attention because the closing price generated through CAS is also used to determine settlement prices for derivative contracts at expiry. Any sharp movement in the cash-market closing price can therefore directly impact futures and options positions.
Why is the Closing Auction Session under scrutiny?
SEBI introduced CAS on August 3, 2026, as a new mechanism for determining closing prices in the equity cash market. The system was intended to improve price discovery around the market close.
However, its initial weeks have brought some challenges, particularly on derivatives expiry days. Market participants have raised concerns about liquidity, volatility and the potential effect of the auction-determined closing price on derivatives settlements. On September 3, unusual volatility was seen during the BSE closing auction. The Sensex reportedly moved sharply within minutes, while premiums on some Sensex put options jumped by as much as 400% to 500%.
SEBI to issue consultation paper.
Following feedback from stakeholders, SEBI said it is considering changes to the methodology for determining derivatives settlement prices. The regulator is expected to issue a consultation paper outlining possible changes within about a week.
The review does not amount to a withdrawal of the CAS framework. Instead, it indicates that the regulator is examining how the mechanism interacts with the derivatives market and whether adjustments are required. The market has viewed the regulatory review positively, with BSE shares gaining during Friday’s trading session. Other capital-market-linked stocks, including brokerage companies, also moved higher following the SEBI announcement. For now, investors will be watching the forthcoming consultation paper closely, particularly for changes that could address liquidity and volatility concerns without undermining the objective of more effective price discovery.
