SEBI’s proposed changes to the Closing Auction Session could ease expiry-day volatility and reduce uncertainty for derivatives traders, according to Jefferies and Anand James of Geojit Investments. Jefferies said the proposals are positive for brokers and exchanges, while James elaborated that the consultation paper could help traders understand the final part of the trading session better and encourage participation.
Jefferies said SEBI’s consultation paper addresses concerns raised by option traders after CAS was introduced in August 2026. The brokerage said the proposals include changing derivative settlement prices to volume-weighted average price or a blend of volume-weighted average price and CAS. SEBI has also proposed stopping cancellation of limit orders placed beyond +/-1% of the reference price during CAS.
Jefferies said these measures should reduce concerns around expiry-day volatility and settlement-price manipulation. The brokerage also noted that unexecuted iceberg orders could be moved into CAS to improve liquidity.
Jefferies said the introduction of CAS initially affected options activity. Index options average daily turnover on the National Stock Exchange and BSE fell 17% and 26%, respectively, in August compared with July, while option orders declined 30%.
However, Jefferies said activity recovered in September as traders became more familiar with CAS. The brokerage said September month-to-date options average daily turnover was down 4% from July levels, while orders traded per day were down 9%.
Jefferies’ report also showed Bombay Stock Exchange options premium turnover and orders traded per day recovering close to pre-CAS levels in September, while index options turnover on the National Stock Exchange also improved.
Jefferies said the proposed changes could address the concerns that emerged after CAS was introduced and help bring trading activity closer to pre-CAS levels. The brokerage said its estimates and market consensus had already assumed that CAS-related issues would normalise from the second half of financial year 2027.
Jefferies expects implementation from late October or November 2026, with responses to the consultation paper due by October 3.
The brokerage said the proposed changes to settlement prices, limit-order cancellations and iceberg orders could reduce uncertainty for derivatives traders while supporting liquidity. Jefferies therefore sees the proposals as positive for brokers and exchanges.
“The detailed and data driven consultation paper that has come within just about a month after the rollout of CAS is significant along two lines, besides ensuring that SEBI meets objectives that it set out with on 3rd of August,” Anand James, Chief Market Strategist at Geojit Investments highlighted .
“While volatility subsided since the first week of August, derivative traders continued to be in a fix, especially on expiry days, once the continuous trading ended for stocks at 3 15pm, while derivative trades continued,” James explained. “During this period, derivative traders who continue to follow the underlying, have to deal with auction matching led volatility, which led to wild swings during this short period.”
James noted that the final 10 to 15 minutes may represent only a small part of the trading day but still account for a significant amount of derivatives activity. “So in a way, SEBI is again indirectly addressing the very segment that it has dealt with strongly in recent years,” he said.
“Secondly, while trying to address different ways to curb this volatility by proposing different settlement mechanisms, there is a quiet acknowledgement that volumes need to improve,” James said.
James explained that the consultation paper could help traders understand the mechanics and importance of the final part of the session. “The detailed consultation paper is also instrumental towards explaining the mechanisms and importance of the last 30 minutes or so and thus educating the traders and encouraging more participation. This should augur well for the success of all proposals,” James added.
Experts believe that SEBI’s consultation paper could help curb expiry-day volatility while improving traders’ understanding of the closing session and encouraging participation. According to them, the proposals could remove uncertainty around CAS and support brokers and exchanges as trading activity recovers.
The information and views mentioned in this article are based on Jefferies’ research report and comments provided by Anand James, Chief Market Strategist at Geojit Investments Limited, and represent their respective views. This article is provided for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. Readers should conduct their own research and consult a qualified financial adviser before making investment decisions. The securities quoted are for illustration only and are not recommendations. Investment in securities market is subject to market risks. Read all related documents carefully before investing.