SEBI Revises Closing Auction Session Framework and Derivatives Expiry Settlement Methodology

Securities and Exchange Board of India, Circular No. HO/47/11/11(3)2025-MRD-POD2/I/23843/2026, October 15, 2026

What happened: The Securities and Exchange Board of India (“SEBI”) issued Circular No. HO/47/11/11(3)2025-MRD-POD2/I/23843/2026 on October 15, 2026, revising the operational architecture of the Closing Auction Session (“CAS”) in the equity cash segment and restructuring the settlement methodology for stock and index derivatives. The circular modifies the earlier framework notified on January 16, 2026, and relevant provisions of Chapter 5 of the Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024. The core provisions take effect on December 07, 2026, while the order-transition rules for unexecuted limit and iceberg orders take effect on February 08, 2027.

The context: SEBI initially introduced the Closing Auction Session to enhance transparency and improve equilibrium closing price discovery in the cash market, while originally intending to tie derivatives expiry settlements directly to CAS closing prices. However, market feedback, deliberations within the Secondary Market Advisory Committee (SMAC), and responses to SEBI’s September 12, 2026 consultation paper highlighted severe systemic risks: concentrating derivatives expiry settlement within a narrow 10-minute auction invited volatility spikes, order crowding, and potential price manipulation. In response, SEBI recalibrated the framework to preserve the auction for cash market price discovery while decoupling derivatives settlement back to a broader volume-weighted average price (VWAP) window.

The regulatory framework: The circular establishes a structured operational schedule and key microstructural rules:

• 10-Minute CAS Structure (3:30 PM to 3:40 PM): Operates across three defined sub-sessions: (i) 3:30–3:31 PM (1 minute) for reference price computation (VWAP of the last 15 minutes of continuous trading) and transition; (ii) 3:31–3:36 PM (5 minutes) order entry for both limit and market orders; and (iii) 3:36–3:40 PM (4 minutes) order entry restricted strictly to limit orders (no market order entry, cancellation, or modification), concluding with a system-driven random closure between 3:38 PM and 3:40 PM.
• Decoupling Derivatives Expiry Settlement: On contract expiry days, clearing corporations will determine settlement prices based on the 30-minute VWAP of the last 30 minutes of the Continuous Trading Session (“CTS”) in the cash market (from index constituents for index derivatives, and across all exchanges for stock derivatives), completely bypassing the CAS auction price. Stock exchanges must disseminate real-time indicative VWAPs throughout this final 30-minute CTS window.
• Trading Windows & Post-Close Session: Index derivatives trade until 3:45 PM on normal days, but expiring index contracts must halt at 3:30 PM on expiry days. Stock derivatives trade until 3:45 PM on all days including expiry. The post-close cash market session runs from 3:50 PM to 4:00 PM at the CAS closing price.
• Transition of Unexecuted Orders & Iceberg Mandates: Unexecuted limit orders pending at 3:30 PM carry forward into CAS with higher time priority than fresh CAS orders. Iceberg orders carry forward as fully disclosed limit orders (unless opted out at entry) but receive lower priority than native limit orders. No new iceberg or stop-loss orders are permitted during CAS, and order-level margins apply to all fresh CAS orders.
• Earlier regulatory stance: Under SEBI’s January 16, 2026, circular the regulator mandated that expiry-day cash settlement for both stock and index derivatives would be determined directly from the single closing price discovered in the Closing Auction Session. The October 15, 2026, circular formally reverses that position, reverting to the time-tested 30-minute VWAP mechanism of continuous trading to prevent auction distortion while standardizing the CAS auction window across all cash exchanges.

Why it matters: This circular resolves one of the most contentious market microstructure debates of 2026 by striking a sensible regulatory balance. On the one hand, institutional investors, mutual funds, and algorithmic desks gain a transparent, multi-phase closing auction to benchmark cash portfolio valuations. On the other, derivatives market participants are shielded from artificial end-of-day price squeezes on contract expiry dates. With the initial seven-day window for exchanges and clearinghouses to revise their Standard Operating Procedures (SOPs) having closed on October 22, 2026, the operational focus now shifts to implementation: trading and risk management engines must adapt to the new market timings by December 7, 2026, ahead of the final February 8, 2027 deadline for iceberg order transitions.

Sources: SEBI Circular No. HO/47/11/11(3)2025-MRD-POD2/I/23843/2026 (October 15, 2026); SEBI Circular on Introduction of Closing Auction Session (January 16, 2026); SEBI Consultation Paper on Review of CAS and Derivatives Settlement (September 12, 2026); Chapter 5, Master Circular for Stock Exchanges and Clearing Corporations (December 30, 2024); Section 11(1), Securities and Exchange Board of India Act, 1992; Regulation 51, Securities Contracts (Regulation) (SECC) Regulations, 2018.

Last Updated on 30 October, 2026