SEBI May Review F&O Settlement Price Rules After Closing Auction Session Rollout

The Securities and Exchange Board of India (SEBI) is considering changes to the way settlement prices for derivative contracts are calculated at expiry following the rollout of the Closing Auction Session (CAS) in India’s equity cash market.

The regulator said it is likely to issue a consultation paper on the proposed changes within about a week. The review comes after SEBI monitored the first month of CAS operations and received feedback from market participants about its impact on derivatives settlement.

Why Is SEBI Reviewing Derivatives Settlement Prices?

SEBI introduced the Closing Auction Session in the equity cash segment from August 3, 2026, following a circular issued on January 16, 2026.

Under the framework, the closing price of securities is determined through the CAS. That closing price also currently forms the basis for calculating settlement prices for derivative contracts on expiry.

The arrangement has prompted concerns among traders and brokers because movements during the closing auction can affect the final settlement value of futures and options contracts.

SEBI said a significant portion of the feedback it received after the implementation of CAS related specifically to the use of the auction-determined closing price for settling derivatives at expiry.

What Concerns Have Traders Raised?

The Closing Auction Session uses a short auction period near the end of the trading day to establish the closing price.

Market participants have argued that price formation during this period can be affected by sudden order imbalances. On derivatives-expiry days, any significant movement in the underlying security’s closing price can consequently influence the final value used for settling futures and options positions.

This has led brokers and traders to question whether the cash-market closing price determined through CAS should continue to be used directly for derivatives settlement.

SEBI said it has considered the experience of the initial implementation period along with feedback received from stakeholders while examining the issue.

CAS Rollout Followed Extensive Consultation

The closing-auction framework was introduced after consultations with a broad range of market participants.

SEBI conducted public consultations on the proposal in December 2024 and August 2025. The regulator also discussed the framework through its advisory committee with stock exchanges, broker associations, institutional investors and other participants in the securities market.

Following the August 3 implementation, SEBI continued engaging with stock exchanges, brokers, proprietary traders, software providers, mutual funds, industry associations and foreign portfolio investors.

The regulator said these interactions were aimed at addressing operational issues and supporting a smoother transition to the new system.

SEBI Has Been Monitoring CAS Since August

SEBI has also been assessing how the Closing Auction Session has affected market functioning during its initial month.

Feedback was collected through multiple channels, including interactions with market participants as well as comments appearing on social media and other media platforms.

The regulator’s latest announcement indicates that it is responding to concerns about one specific consequence of the CAS framework — the methodology used to establish settlement prices for derivatives.

SEBI said it may propose changes to the methodology after considering the initial experience and stakeholder feedback.

Is SEBI Planning to Scrap the Closing Auction Session?

No.

The proposed review concerns the methodology for determining derivatives settlement prices, rather than a rollback of the Closing Auction Session itself.

CAS was introduced to improve closing-price discovery in the equity cash market and bring India’s market structure closer to practices followed in other major markets.

Any changes to the derivatives settlement framework will still have to go through the consultation process before SEBI takes a final decision.

What Happens Next?

SEBI is expected to publish its consultation paper in approximately a week, setting out the proposed changes and seeking views from market participants.

The document should provide greater clarity on whether the regulator wants to modify the current link between the CAS closing price and derivatives settlement, and what alternative methodology could be considered.

Until SEBI finalises any changes, the existing framework remains applicable.