SEBI likely to propose changes to Closing Auction Session framework

The Securities and Exchange Board of India (SEBI) is likely to issue a consultation paper on the Closing Auction Session (CAS), with the market regulator expected to propose changes to the methodology used to determine settlement prices for derivative contracts, according to a report.

The proposal is likely to be discussed at the SEBI board meeting scheduled for September 24. It is expected to address concerns raised by market participants over the calculation of derivative settlement prices on expiry days under the newly introduced CAS mechanism.

SEBI is not expected to withdraw the CAS but may seek to refine the settlement-price calculation process. SEBI Chairman Tuhin Kanta Pandey has earlier said that “CAS is here to stay”, while acknowledging that the regulator was examining concerns raised by market participants.

The CAS came into effect on August 3. Under the mechanism, continuous trading in futures-and-options eligible stocks ends at 3:15 pm, after which the securities enter an approximately 20-minute auction in which buy and sell orders are matched to determine the official closing price.

Non-F&O stocks continue trading until 3:30 pm, while stock and index derivatives trade until 3:40 pm.

The new system has led to sharp market movements, particularly on derivatives expiry days. During last week's session, the indicative Sensex close briefly fell around 2.5 per cent, while put-option premiums surged by 400–500 per cent during the closing auction. Nifty put options also witnessed sharp movements during expiry-day trading.

Market analysts have said the CAS has made expiry-day execution more difficult to predict for systematic options strategies. They have also raised concerns that limited participation in the auction could allow a relatively small number of orders to have a significant impact on closing prices.