SEBI to review CAS-based settlement price methodology for derivative contracts

Securities and Exchange Board of India SEBI on Thursday said it plans to review the methodology for determining the settlement prices of derivative contracts based on the closing price determined by the newly introduced Closing Auction Session according to news agency PTIThe move comes amid concerns about the Closing Auction Session CAS with market participants flagging liquidity issues and sharp volatility in the benchmark indices post the implementation of CAS on August 3Among the issues raised 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 the regulator said in a statementAt present the closing price arrived at through CAS also serves as the basis for determining settlement prices of derivative contracts on expiryHowever after monitoring the newly introduced system and its impact on the market along with the feedback from market participants SEBI said it may propose changes to the methodology for determining settlement prices of derivative contractsThe proposed changes will be part of the consultation paper which is expected to be issued in about a weekThe market regulator said since the implementation of CAS it has been actively involved with stock exchanges brokers proprietary traders software vendors mutual funds industry associations and FPIs to ensure smooth rollout and to address operational issues emerging during its initial adoptionIt said that the feedback was received from market participants and other stakeholders through multiple channels including social media and other platformsWhy was CAS introducedCAS was introduced after extensive stakeholder consultations and policy deliberations including two rounds of public consultation held in December 2024 and August 2025 as well as discussions with advisory committees and various stakeholders as per PTIIt was implemented on August 3 to make the price discovery mechanism more robust and transparent The closing auction mechanism for shares having futures and options contracts consists of a dedicated 20minute session during which buy and sell orders are collected to determine an equilibrium closing price for a stockThe final price is discovered at the level where the maximum executable volume is matched The new framework swaps the earlier methodology of using the weighted average of trades executed during the final 30 minutes of the regular trading session to calculate the closing pricesThe regulator had said CAS will help to achieve crossmarket consistency and enhance the robustness of Indiarsquos price discovery mechanism making it fairer and more transparentWhat happened when CAS was introducedFollowing the introduction of the new CAS system on August 3 the Sensex jumped 54439 points or 070 per cent to settle at 7863903 while the Nifty climbed 39070 points or 160 per cent to end at 2477430This created uncertainty among market participants due to the divergence between the Sensex and the Nifty as usually the benchmark indices are in syncCAS manipulationAmid concerns over CAS the market regulator had said it had found no evidence of manipulation in the mechanism and SEBI chief had stated the market regulator can easily detect if someone is trying to rig the systemWe can catch hold of manipulation in CAS relatively easily CAS is for transparency And if anybody feels that they will manipulate CAS for defaming the new system they are in danger Tuhin Kanta Pandey had saidLast month SEBI issued an interim order impounding a total of Rs 368 crore in alleged wrongful gains from two entities accused of price manipulation during the CAS on the BSE Sensex weekly options expiry day on August 13 as per PTIWith inputs from PTI