SEBI, through its circular dated October 15, 2026, has announced revisions to the Closing Auction Session (CAS), market timings, and settlement methodology for equity derivatives.
The revised framework aims to improve closing-price discovery while addressing concerns around the impact of CAS price movements on F&O expiry settlement.
One of the key changes is that the settlement price for expiring F&O contracts will be determined using the last 30-minute Volume Weighted Average Price (VWAP) of the underlying securities during continuous trading, instead of the CAS-derived closing price.
CAS will continue to determine the official closing price in the cash market. As a result, the cash-market closing price and the settlement price for expiring derivatives may differ.
SEBI has also revised the CAS structure and trading hours for the equity and derivatives segments, with the changes scheduled to take effect from December 7, 2026.
What’s changing?
The biggest change is how the settlement price for expiring F&O contracts will be calculated.
| Particulars | Earlier CAS framework | Revised framework |
|---|---|---|
| Cash-market closing price | CAS price | CAS price |
| F&O expiry settlement | CAS-linked closing price | Last 30-minute VWAP |
| ITM/OTM determination on expiry | Could change due to CAS | Based on VWAP |
| Physical delivery obligations | Could be triggered by CAS movements | Based on VWAP settlement price |
This means the official closing price of a stock and its F&O expiry settlement price can now be different.
Let’s understand with an example
Suppose a stock has a last 30-minute VWAP of ₹1,000, and a trader holds a ₹1,010 call option expiring that day.
During CAS, the stock moves to ₹1,025.
Under the earlier framework, the option could expire ITM by ₹15, potentially creating a physical delivery obligation even though the trader could no longer trade the expiring option.
Under the revised framework, the settlement price would be ₹1,000, meaning the ₹1,010 call expires OTM.
This doesn’t eliminate expiry-day risk. The VWAP itself can still move an option ITM or OTM, but subsequent CAS movements will no longer determine the settlement outcome.
Revised market timings
SEBI has also revised trading hours to accommodate the new CAS structure.
| Segment | Trading ends |
|---|---|
| Equity cash continuous trading | 3:30 PM |
| Closing Auction Session | 3:40 PM |
| Expiring index derivatives | 3:30 PM |
| Non-expiring index derivatives | 3:45 PM |
| Stock derivatives | 3:45 PM |
An important change is that stock derivatives and non-expiring index derivatives will continue trading until 3:45 PM, while expiring index derivatives will close at 3:30 PM.
How will the new Closing Auction Session work?
CAS will run for 10 minutes, from 3:30 PM to 3:40 PM, with three stages.
| Time | Session | What happens? |
|---|---|---|
| 3:30–3:31 PM | Transition | Reference price calculation and transition from continuous trading to CAS |
| 3:31–3:36 PM | Order entry | Both market and limit orders can be placed |
| 3:36–3:40 PM | Final order entry | Only limit orders can be placed. Existing market orders cannot be modified or cancelled |
Note- The auction order-entry session will close randomly between 3:38 PM and 3:40 PM.
This means traders shouldn’t wait until the last few seconds to place or modify orders, as the session could close before their orders are submitted.
The random closing mechanism is intended to reduce last-second order manipulation and support fairer price discovery.
SEBI has also revised the treatment of pending limit and iceberg orders during the transition from continuous trading to CAS. These changes will take effect separately from February 8, 2027.
When will these changes take effect?
| Effective date | Changes |
|---|---|
| December 7, 2026 | Revised CAS timings, market hours and F&O settlement methodology |
| February 8, 2027 | Revised rules for carrying forward pending limit and iceberg orders into CAS |
A win-win for both sides?
Overall, this looks like a sensible middle ground.
Cash-market participants continue to benefit from auction-based closing-price discovery, while F&O traders get a settlement mechanism based on continuous trading.
SEBI has retained CAS while addressing one of the biggest concerns raised by derivatives traders since its introduction.
Cash gets its closing auction. F&O gets a more predictable settlement price. A win-win for both.
