CAS set for a rework: What's up for change

Mumbai: India's contentious new closing auction (CAS) has had a bumpy start. Barely six weeks after its launch, Sebi is already reviewing parts of the framework. Here's what went wrong and what could change:

Why is Sebi reviewing CAS so soon after introducing it?

CAS has been around only since August 3, but its first few weeks have been chaotic.

The auction saw sharp swings in Nifty and Sensex, especially on expiry days. Options traders faced losses, algos misfired, and option premiums stayed high at expiry instead of decaying. Lower participation during CAS added to concerns, giving large orders more sway over closing prices in the auction


Sebi's own review has flagged movements in indicative index values during CAS and significant moves in some index options nearing expiry.

Before we go further, jog our memory. What exactly is CAS and what's the big deal about it?

Until August 3, closing prices were based on the volume-weighted average price (VWAP) of trades during the final 30 minutes. These prices set index levels, mutual fund NAVs and derivatives settlement.

CAS changed that. Normal trading in the 200-odd F&O stocks now ends at 3:15 pm, after which buy and sell orders are collected in an auction. Exchanges find the single price at which the maximum quantity can be matched, and that becomes the stock's closing price.

The idea was to make closing-price discovery more robust and reduce the influence of large last-minute orders, while helping passive funds execute large trades closer to the official closing price.

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Since key issues are around derivatives expiry, how does Sebi propose to deal with it?

Sebi has offered two alternatives for calculating the price at which index and single-stock derivatives will be settled on expiry days.

Option 1 is a blended VWAP, combining trades during the last 30 minutes of normal trading with those during the 10-minute CAS. Their weight would depend on the actual value traded in each period, rather than any fixed proportion.

Option 2: temporarily return to the old VWAP system, using only the last 30 minutes of trading. CAS would still set cash market closing prices, but not derivatives settlement. Under Option 2, Sebi could consider a shift to the blended VWAP after at least a year, depending on the experience with CAS.

Is Sebi also proposing to change market timings?

Yes. There are two choices: keep normal trading open longer or finish the entire closing process earlier.

Under the first, normal trading in CAS stocks would continue until 3:30 pm, CAS until 3:40 pm, and derivatives until 3:45 pm.

Under the second, normal trading would continue to end at 3:15 pm, but CAS would finish by 3:25 pm and derivatives by 3:30 pm.

One keeps normal trading open longer and shifts CAS later; the other retains the 3.15 pm cut-off but wraps everything up faster. In either case, Sebi wants to reduce the time gap between normal trading and CAS and also shorten derivatives trading after the auction.

Why has Sebi become stricter about cancelling orders during CAS?

Because even an order during the auction that is later cancelled can influence prices and mislead traders.

In an August enforcement order, Sebi alleged that large orders in Sensex constituents were used to influence indicative prices in directions favourable to derivatives positions.

Sebi is now proposing that orders placed more than 1% away from the reference price cannot simply be cancelled. They can still be placed within the existing 3% outer limit, but can only be modified by raising the price of a buy order or lowering that of a sell order.

In short, Sebi wants to make it harder to withdraw orders that can sway the auction.

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Why is SEBI worried about indicative index values during CAS?

Because they're not actual traded levels, but evolving Nifty or Sensex estimates based on indicative prices of stocks in the auction. Sebi said these values could be mistaken as actual index levels or used to take derivatives positions even as they change. It has proposed stopping indicative index values during CAS, while continuing to show indicative prices for individual stocks.

Do these proposals mean the current CAS is faulty and Sebi is abandoning it?

No. Sebi is not abandoning CAS. It is tweaking the framework after early experience. Some market participants see the review as an acknowledgement that the system needs to be adapted to Indian market conditions.

Which option for determining the expiry settlement price are market participants likely to prefer?

Prima facie, domestic market participants seem to be leaning towards Option 2: the temporary return to the old 30-minute VWAP for settling expiring derivatives. The reason is familiarity and predictability. Traders spent years with an expiry settlement price linked to actual trades during the final 30 minutes. CAS changed that rhythm abruptly.

How and when will Sebi finally decide?

Sebi has invited public comments on the proposals by October 3, 2026, but has not specified when it will take a final decision or when any changes will take effect.