Sebi to review derivatives settlement price methodology after CAS feedback

Sebi plans to review the methodology for setting derivative settlement prices on expiry after market participants raised concerns over the new Closing Auction Session (CAS). The regulator will issue a consultation paper next week.

Shares of BSE, Groww, Angel One, Nuvama Wealth Management and Motilal Oswal rallied up to 8% after capital markets regulator Securities and Exchange Board of India (Sebi) issued a circular on the newly implemented Closing Auction Session (CAS).

The Securities and Exchange Board of India (Sebi) said on Thursday that it would review the methodology used to determine settlement prices for derivative contracts on expiry, following feedback from market participants after the rollout of the new Closing Auction Session (CAS) in the equity cash market.

Following the news, BSE shares rallied 5% to hit a day’s high of Rs 3,466, with Angel One shares jumping 8% to Rs 308. Motilal Oswal shares gained over 2% to Rs 1,038, and Groww climbed more than 3% to a day’s high of Rs 196 apiece.

“Having considered the experience of the initial period of CAS implementation and the feedback received from various stakeholders, Sebi may be proposing certain changes in the methodology for determination of settlement prices of derivative contracts for which a consultation paper will be issued in about a week,” Sebi said in a statement.

Among the issues raised, Sebi said, a significant area of feedback relates to the determination of settlement prices of derivative contracts on expiry based on the closing price determined through CAS.

CAS is a call auction mechanism used to determine the closing price of stocks in the cash segment on which derivative contracts are available.

The development gains significance as stock exchanges acknowledged that the newly introduced Closing Auction Session (CAS) had resulted in lower trading volumes.

According to an ET report, equity derivatives turnover on the NSE and BSE fell to multi-month lows in August, with analysts attributing the decline to heightened volatility under the new CAS mechanism. The volatility prompted several market participants to scale back derivatives activity, particularly during the final half-hour of trading.

Last month, NSE’s total monthly equity derivative turnover stood at Rs 34.48 lakh crore, the lowest since November 2023. BSE’s August turnover stood at Rs 32.2 lakh crore, the lowest since June 2025.

Wall Street brokerage Jefferies, in a report earlier this week, said the key challenge with CAS has been the uncertainty on expiry day, forcing option writers to stay away from the market. This has reduced the profitability of proprietary traders. Jefferies said Sebi could address challenges with CAS through three measures: de-linking options expiry from the CAS window, improving the stock lending and borrowing mechanism, and deepening the auction pool.

The review follows sharp expiry-day moves seen after the introduction of CAS. Traders have complained that sudden swings in the closing auction can lead to large changes in option prices in the final minutes of trade, especially when contracts are close to expiry.

The regulator did not specify what changes may be proposed. The consultation paper expected next week will be watched closely by brokers, proprietary desks, institutional investors and active derivatives traders.

Any change in methodology could be important for expiry-day risk management. If the settlement price is less directly linked to short-period CAS movements, it may reduce the chance of sudden option price spikes in the final minutes.