SEBI changes derivatives settlement methodology; revises CAS framework

Markets regulator Sebi on Thursday revised the framework for the Closing Auction Session CAS changing trading timings and the methodology for determining settlement prices of stock and index derivatives contractsUnder the revised framework the 10minute closing auction session will operate from 330 pm to 340 pm on all trading days while trading in index and stock derivatives will continue until 345 pm with certain exceptions for expiring index derivatives contracts Sebi said in its circularFurther a key change pertains to the settlement of expiring derivatives contracts which will now be based on a Volume Weighted Average Price VWAP methodology using the last 30 minutes of continuous tradingThe revisions follow a review of the existing framework consideration of public comments recommendations of Sebis Secondary Market Advisory Committee and discussions with stock exchangesThe changes are aimed at improving transparency and price discovery while ensuring a more orderly closing processThe modifications except those relating to the transition of unexecuted limit and iceberg orders from the continuous trading session to the closing auction session will come into effect from December 7 The provisions governing the transition of such orders will be implemented from February 8 2027Sebi had introduced the CAS framework in the equity cash segment from August 3 to determine the closing price of securities Under the existing framework the closing price determined through CAS also serves as the basis for calculating settlement prices of derivative contracts on expiryFollowing concerns over this methodology Sebi proposed changes in September and issued a consultation paper seeking public commentsUnder the revised schedule the closing auction session will begin at 330 pm with reference price calculation and the transition of orders from the continuous trading sessionOrder entry for both limit and market orders will be allowed from 331 pm to 336 pm followed by a period during which only limit orders can be placed The session will close randomly between 338 pm and 340 pmThe postclose session in the cash segment will run from 350 pm to 4 pm with trades executed at the closing prices of securitiesFor determining the reference price used in CAS Sebi said the price of a security in the cash segment will be based on the VWAP of trades executed during the last 15 minutes of the continuous trading sessionIf no trade takes place during this period the last traded price of the day will be used In the absence of any trade during the day the previous trading days closing price will serve as the reference price adjusted for corporate actions wherever applicableThe regulator has also specified the types of orders permitted during CASAlso Sebi has revised the methodology for determining settlement prices of expiring derivatives contractsFor index derivatives the settlement price on expiry day will be based on the value of the underlying index calculated using the VWAP of constituent securities during the last 30 minutes of the continuous trading session in the equity cash segmentFor stock derivatives the settlement price of expiring contracts will be determined using the VWAP of the underlying stock during the last 30 minutes of the continuous trading session across all stock exchangesStock exchanges will compute and disseminate indicative values of the underlying index and indicative VWAPs of underlying securities in real time during the relevant period to facilitate transparencyThe regulator has also specified that stock futures price bands between 330 pm and 345 pm will align with those applicable during the closing auction sessionThe existing framework for dynamic flexing of price bands will not apply to stock futures during this period