The Securities and Exchange Board of India’s (Sebi) decision to revert to the earlier method of determining settlement prices of index and stock derivatives on expiry days is expected to reduce volatility and encourage greater market participation, experts said.
From December 7, 2026, settlement prices of expiring derivatives will be determined using the volume-weighted average price (VWAP) during the last 30 minutes of continuous trading, rather than prices discovered during the closing auction session (CAS).
The move is expected to address sharp price swings during the auction that had led to lower participation and losses for option writers and traders.
In a report, brokerage firm Jefferies said the return to the 30-minute VWAP method would reduce volatility in CAS and benefit brokers, whose order volumes have remained below pre-CAS levels. However, it cautioned that the earnings upside for exchanges could be limited even if premium turnover returns to earlier levels.
Hemang Gor, senior research analyst – derivatives and technical research, Axis Direct, said decoupling derivatives settlement from CAS would reduce artificial “auction shocks” while ensuring market continuity. Aligning the end of trading in expiring index derivatives with the start of CAS would also help stabilise execution.
“This continuous 30-minute window naturally absorbs massive institutional block trades, preventing the sudden, erratic premium spikes that plagued the 10-minute auction mechanism,” he said.
However, Gor cautioned that volatility could persist if aggressive trading in underlying stocks during the final 30 minutes of continuous trading influences VWAP and, consequently, derivatives premiums.
Market participants would also have to manage the divergence between CAS-based closing prices in the cash market and continuous trading-based settlement prices in the derivatives market, he added.
Kamlesh Shroff, president of the Association of NSE Members of India (ANMI), welcomed the changes, calling them a constructive step. He said the decision to use the 30-minute VWAP for derivatives settlement was particularly positive as it addressed concerns over potential price manipulation.
To improve liquidity, Sebi has also allowed unexecuted iceberg and limit orders to be carried forward from continuous trading into CAS.
Gor said the changes could deepen the order book, particularly for retail and proprietary traders, improve price discovery and stabilise indicative equilibrium prices (IEP).
However, he expects the increase in CAS volumes to be moderate rather than substantial, given the restrictions on execution priority for carried-forward orders.
Institutional investors, particularly large funds, may choose to opt out of carrying forward iceberg orders because of their lower execution priority and disclosure requirements. This could limit liquidity gains as institutions seek to protect their trading strategies.
Shroff added that the revised framework struck a balance between transparency, market liquidity and operational practicality, while allowing market participants to continue hedging their positions through derivatives trading.