SEBI Reviews CAS: Proposed Changes to Derivatives Settlement, IEPs and New Market Timings?

A month after introducing the new Closing Auction Session, SEBI has proposed changes after early market feedback raised concerns about derivatives settlement on expiry days, changing auction prices and trading timings. SEBI is not scraping CAS. Instead, it wants to make expiry settlement clearer, improve the auction process and help traders understand that indicative auction prices are not the same as actual traded prices. 

The proposals are contained in SEBI’s consultation paper issued on 12 September 2026. They are not final rules. Public comments are invited until 3 October 2026. 

What is SEBI trying to address with its CAS consultation paper?

CAS was introduced for F&O stocks on 3 August 2026 to make closing price discovery more transparent and auction driven. Under the earlier system, any stock’s closing price was based on the volume-weighted average price (VWAP) of actual trades during the last 30 minutes of the Continuous Trading Session (CTS). Under CAS, buy and sell orders are accumulated in an auction book and executed at a single equilibrium price. 

SEBI’s initial review indicates that the change created uncertainty around derivatives settlement and closing-price discovery on expiry days. However, the exchange is still deciding the final closing price of shares through CAS, traders can continue buying and selling related futures and options. 

The regulator is trying to address four connected issues:

• Expiry settlement uncertainty: The current CAS linked method can concentrate settlement significance in a short auction period.
• Heavy end of day derivatives activity: Expiry day index option activity remains concentrated around the close, including during the transition from CTS to CAS and during CAS itself.
• Misreading of indicative data: The Indicative Equilibrium Price (IEP) and the IEP derived Indicative Index Value (IIV) can move before any auction trade has occurred.
• Auction order quality and liquidity: SEBI wants a more stable, transparent order book and better continuity of executable liquidity from CTS into CAS. 

SEBI’s data show that average premium traded per minute in expiring benchmark index options during the 3:20 PM to 3:30 PM CAS window was ₹189.82 crore on NSE and ₹288.94 crore on BSE. These figures were higher than the respective average levels of ₹126.31 crore and ₹141.48 crore during the comparable 3:00 PM to 3:30 PM pre CAS period. 

CAS, IEP and Settlement Price

What is CAS?

The Closing Auction Session is an end of day auction for F&O stocks. Instead of matching orders continuously, the exchange collects eligible buy and sell orders and determines one equilibrium price at which the maximum executable quantity can be matched. 

That final auction-clearing price becomes the stock’s official closing price for the day.  

What is the IEP?

The Indicative Equilibrium Price is not a traded price. It is an evolving calculation based on the orders currently available in the auction book. It indicates the price at which the maximum possible quantity could be executed if the auction ended at that moment. 

The IEP can change when participants add, modify or cancel orders. Only the final CAS price represents a price at which auction transactions have been executed. 

Why the distinction matters

A live IEP movement does not necessarily mean a security has traded at that level. Similarly, an IEP derived Indicative Index Value does not mean the index itself traded at the displayed level. 

SEBI’s core message is that traders should distinguish between: 

• Actual traded prices during CTS.
• The evolving IEP during CAS.
• The final CAS closing price.
• The expiry settlement price used for derivatives contracts. 

These values can differ. 

Proposal 1: Change Expiry Settlement

The current concern

Before CAS, expiry settlement for index and single stock derivatives was based on the last 30 minutes of CTS VWAP. Once CAS was introduced, the CAS based closing price became central to settlement. 

SEBI now proposes two alternatives for both index derivatives and single stock derivatives. 

Option 1: Blended VWAP

Under the Blended VWAP option, settlement would include actual transactions from: 

• The final 30 minutes of CTS.
• The 10 minutes CAS. 

CAS would not receive a fixed weight. Its contribution would depend on its actual share of total traded value during the relevant CTS plus CAS period. 

For example, if 90% of the relevant traded value occurred in CTS and 10% in CAS, CAS would have a 10% contribution to the blended settlement calculation. The weight comes from actual market activity, not a pre-decided formula. 

For index derivatives, the calculation would use blended prices of the underlying constituent securities. For single stock derivatives, it would use VWAP across exchanges and across the relevant CTS and CAS transactions. 

Option 2: CTS VWAP first

Under this option, expiry settlement would temporarily use only actual transactions from the final 30 minutes of CTS. CAS transactions would not count towards derivatives settlement during this interim period. 

This would restore the settlement methodology used before CAS was introduced. SEBI says this approach could provide familiarity, continuity and greater certainty while CAS participation and liquidity develop. 

The likely long-term direction

SEBI states that the blended VWAP model is the intended long-term framework. However, it says any transition from CTS-only VWAP to Blended VWAP should not occur automatically after one year. 

Before making the change, SEBI would assess whether CAS has operated for at least one year, whether sufficient liquidity and participation have developed, whether participants have adapted to the mechanism, and how price discovery performs under different market conditions.

Proposal 2: Change Market Timings

Why timings need revision

The current CAS arrangement contains a five-minute transition between CTS and CAS. SEBI says it can now reduce this operational transition to up to one minute. 

It also proposes reducing the post CAS derivatives trading window from 10 minutes to five minutes. The objective is to improve continuity between the continuous market and auction, while still giving participants time to manage residual positions after cash market price discovery is complete. 

Option A: CTS until 3:30 pm

• CTS for all stocks continues until 3:30 pm.
• CAS for eligible stocks runs from 3:31 pm to 3:40 pm.
• F&O trading continues until 3:45 pm.
• The post CAS derivatives window is five minutes. 

This option restores a common 3:30 pm end to continuous trading for CAS and non CAS stocks. The trade-off is that the F&O segment will close later at 3:45 pm . 

Option B: F&O closes at 3:30 pm

• CTS for CAS stocks ends at 3:15 pm.
• CTS for non-CAS stocks continues until 3:30 pm.
• CAS for eligible stocks runs from 3:15 pm to 3:25 pm.
• F&O trading continues until 3:30 pm.
• The post CAS derivatives window is five minutes. 

This option retains the 3:30 pm close for the derivatives market but continues to have different CTS end times for CAS and non-CAS stocks. 

Proposal 3: Stop Live IEP Based Index Values

What SEBI proposes

SEBI proposes to stop dissemination of the IEP derived Indicative Index Value during CAS. However, security level IEPs would continue to be disseminated. 

Why SEBI wants to remove IIV

The index itself is not auctioned. During CAS, the IIV is calculated using the evolving IEPs of its constituent stocks. Since these are unexecuted indications, a live IIV can be misread as an index level where actual trades have occurred. 

For instance, an IIV moving from 50,000 to 48,500 does not mean the index traded at 48,500. It only reflects the prices at which constituent orders could potentially execute if the auction closed at that moment. 

SEBI says exchanges would continue to disseminate actual index values based on last traded prices, along with expected settlement price information during the relevant window. 

Proposal 4: Restrict Cancellation of Far-Away Orders

What stays unchanged

The overall CAS price band would remain at ±3% of the reference price. SEBI is not proposing to tighten the maximum permissible price range. 

What changes

SEBI proposes different cancellation rules depending on how far an order is from the reference price: 

• Orders within ±1% of the reference price may be cancelled under the existing framework.
• Orders beyond ±1% and up to ±3% would become non cancellable during CAS.
• These orders could only be changed in a price improving direction. 

For a buy order, price improvement means raising the bid. For a sell order, it means lowering the offer. Any modification must remain within the ±3% CAS price band. 

The purpose

SEBI wants to preserve flexibility for orders close to the reference price while reducing the ability of far-away orders to enter, influence the auction book or IEP, and then be withdrawn. The intended result is a more stable and credible order book without narrowing the overall price-discovery range. 

Proposal 5: Move Iceberg Residuals Into CAS

The current position

An iceberg order divides a large order into smaller visible portions. Under the current framework, unexecuted iceberg orders from CTS do not move into the disclosure-based CAS order book. 

What SEBI proposes

SEBI proposes to transfer the unexecuted quantity of an iceberg order into CAS as a limit order. The full residual quantity would be disclosed in the CAS book. 

For example, if an iceberg order is for 10,000 shares, 6,000 shares have been executed during CTS and 4,000 shares remain at the start of CAS, the remaining 4,000 shares would enter CAS as a fully visible normal limit order. 

The purpose

The proposal is intended to: 

• Preserve eligible trading interest from CTS to CAS.
• Add executable liquidity to the closing auction.
• Make the auction order book more transparent.
• Allow the full unexecuted quantity to participate in closing-price discovery. 

What SEBI’s CAS circular mean for traders?

Retail options traders

The settlement methodology is the most important issue for expiry day option traders. A temporary CTS only VWAP framework could make settlement less dependent on a short CAS period, but it would not eliminate close period volatility or expiry risk. 

Traders should also avoid treating IEPs or IEP derived index indications as confirmed traded prices. The final CAS close and derivative settlement reference may differ from intraday indications. 

Option buyers and writers

For contracts close to the strike price, a small difference in the eventual settlement benchmark can determine whether an option expires in the money or out of the money. This makes the final settlement methodology, applicable time window and actual cash-market trading activity particularly important. 

Institutional investors and arbitrageurs

Institutional cash market participants may see more visible auction liquidity if residual iceberg quantities enter CAS. Arbitrageurs and brokers would need to adjust closing strategies, hedges and systems depending on the final settlement and timing model. 

The shorter five-minute post-CAS derivatives window would still provide time to manage residual positions, but less time than the current 10-minute window. 

SEBI’s consultation paper is a course correction, not a reversal of CAS. The regulator is trying to retain auction-based closing-price discovery while reducing the risk that a short, evolving auction has an outsized or misunderstood role in derivatives expiry settlement. 

None of these measures is final yet. SEBI has invited public comments on all seven proposals until 3 October 2026. Traders, brokers and investors should wait for SEBI’s final decision and subsequent exchange circulars before changing trading or risk-management processes.