In a significant change aimed at addressing concerns over sharp price swings during the closing auction session (CAS), the Securities and Exchange Board of India (Sebi) on Thursday decided to restore the earlier method of determining settlement prices for index and stock derivatives on expiry days.
The regulator also shifted the 15-minute closing auction session to 3:30–3:45 pm from the existing 3:15–3:30 pm window and introduced changes to the order placement and matching process. The revised framework will come into effect on December 7, 2026.
Under the new rules, settlement prices of index and stock derivatives on expiry days will once again be determined using the volume-weighted average price (VWAP) of constituent securities or the underlying stock during the last 30 minutes of the continuous trading session in the cash market. This marks a return to the pre-CAS methodology and is expected to reduce the impact of sharp price fluctuations during the closing auction on derivative settlements.
Stock exchanges will also be required to calculate and disseminate the indicative VWAP of underlying stocks and indices, giving market participants greater visibility into potential settlement prices.
The changes follow episodes of extreme volatility during the closing auction, when sharp swings in indicative prices raised concerns among market participants over their impact on derivative settlements.
The transition from continuous trading to CAS will now take just one minute, from 3:30 pm to 3:31 pm, compared with five minutes currently. This will be followed by a five-minute window, until 3:36 pm, during which investors can place both limit and market orders.
A second four-minute window, from 3:36 pm to 3:40 pm, will allow only limit orders. The session will close randomly during the final two minutes of this window, after 3:38 pm. Market orders cannot be cancelled or modified during this period.
Stock exchanges will begin matching orders after 3:36 pm in accordance with the CAS framework. The final closing price and quantity of securities executed will be communicated to market participants as soon as practicable.
The regulator has also revised trading hours for derivatives to align them with the new auction timings. Trading in index derivatives will continue until 3:45 pm on normal trading days. However, on expiry days, index derivatives trading will end at 3:30 pm, before the closing auction begins.
Stock derivatives, on the other hand, will continue trading until 3:45 pm on all trading days, including expiry days.
For the cash market, the reference price used in the closing auction will be based on the VWAP of trades executed during the final 15 minutes of continuous trading. If a security does not trade during this period, its last traded price will be used. In cases involving corporate actions, the previous day’s closing price will be suitably adjusted to arrive at the reference or base price.
Sebi has also provided for all unexecuted limit and iceberg orders. Now, they will automatically move into the closing auction, except stop-loss orders and those falling outside the price bands applicable during CAS.
Iceberg orders, which allow large orders to be placed in smaller disclosed portions, will enter CAS as fully disclosed limit orders unless investors choose to opt out when placing the original orders. However, such iceberg orders will receive lower priority.
The regulator has prescribed separate arrangements for special trading sessions. The closing auction will have the same duration as on normal trading days, while derivatives trading will continue for five minutes after CAS ends. A 10-minute post-close session will begin five minutes after the derivatives segment closes.
Sebi has directed stock exchanges to issue the necessary operational guidelines and put systems in place to ensure a smooth transition to the revised framework.