The Securities and Exchange Board of India’s (SEBI) proposed changes to the new closing auction session (CAS) are expected to make price discovery less disruptive and resolve many practical problems, but early reactions from market participants still suggest a preference for the more familiar system of using volume-weighted average price (VWAP) for derivatives settlement.

Dual options

The market regulator has proposed two options for the settlement of index and single-stock derivatives on expiry days. One would immediately shift to a blended VWAP, using trades during the last 30 minutes of continuous trading and the 10-minute CAS. The other would revert to the pre-CAS method of using only the last 30 minutes of continuous trading for at least a year before moving to the blended methodology.

The removal of indicative index values could be particularly useful in reducing distortion during the auction, Feroze Azeez, Joint CEO at Anand Rathi Wealth, said. “The indicative prices were creating volatility without any actual trades taking place. We saw the Sensex indicative level move by thousands of points based on orders that were never executed,” he said.

CAS also saw instances of aggressive orders moving indicative prices before being cancelled, potentially benefiting derivatives positions. “The issue was not the ±3 per cent band itself... Making orders beyond 1 per cent more binding tackles the real problem by reducing the scope for such manipulation,” Azeez said.

The proposed operation changes, however, have not necessarily shifted the preference towards CAS as the basis for derivatives settlement, as a blended VWAP is seen as adding unnecessary complexity by making settlement dependent on two different trading mechanisms.

Uttam Bagri, promoter director at BCB Brokerage and former chairman of the BSE Brokers Forum, backed retaining the last 30-minute VWAP while extending cash market trading to 3:30 pm, followed by the auction session and a five-minute derivatives window, instead of the current 3:15 pm cut-off. Trivesh Dinesh, COO at Tradejini, echoed the view, saying, “The objective should be to have a settlement methodology that is transparent, easy to understand, and consistent for all market participants.”

Trader and sub-broker forums largely favoured retaining VWAP, citing its simplicity and established use in expiry settlement. Anand James, chief market strategist at Geojit Investments, said the different settlement options proposed by SEBI also reflected the need for CAS volumes to improve.

Published on September 13, 2026