Sebi to review derivatives settlement price methodology after CAS volatility

Sebi will review the way settlement prices are determined for derivative contracts after feedback from market participants over the impact of the Closing Auction Session on expiry-day settlement. The market regulator said on Thursday that it may propose changes in the methodology used to determine settlement prices of derivative contracts. A consultation paper on the proposed changes will be issued in about a week, Sebi said.

The move comes after the rollout of the Closing Auction Session, or CAS, in the equity cash segment from early August this year. Under the framework introduced through Sebi’s January 16 circular, the closing price discovered through CAS is also used as the basis for settlement prices of derivative contracts on expiry.

The review follows sharp expiry-day moves seen after the introduction of CAS. Traders have complained that sudden swings in the closing auction can lead to large changes in option prices in the final minutes of trade, especially when contracts are close to expiry.


On Thursday, Sensex moved from around 76,510 at 3:17 pm to about 74,373 at 3:20 pm, triggering a sharp spike in put options. The 76,600 put option jumped from Rs 102 to Rs 446, while the 76,400 put surged from Rs 45 to Rs 246. Such moves deepened concerns over how CAS prices feed into derivative settlement.

CAS was introduced to determine the closing price of securities in the equity cash segment. The mechanism is meant to improve closing price discovery by collecting buy and sell orders during the auction window. However, the use of the same CAS-discovered closing price for derivative settlement has created concerns because derivatives positions can be much larger and more leveraged than cash-market trades.

Sebi said it has closely monitored the functioning of CAS and its market impact during the first month of operation. The regulator also said it received feedback and suggestions from market participants through multiple channels, including social media and other media platforms.

A key area of feedback related to the use of CAS-determined closing prices for settling derivative contracts on expiry. This has become a sensitive issue for traders because even a sharp movement in the cash-market closing price can change the value of expiring index options and futures.

Sebi said the CAS framework was introduced after detailed consultations and policy deliberations. The regulator said two rounds of public consultation were held in December 2024 and August 2025, along with discussions in advisory committees and with stock exchanges, broker associations, institutional investors and other stakeholders.

After CAS was implemented, Sebi said it continued to engage with stock exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations and foreign portfolio investors to support smooth implementation and address operational issues during the initial adoption period.

The regulator did not specify what changes may be proposed. The consultation paper expected next week will be watched closely by brokers, proprietary desks, institutional investors and active derivatives traders.

Any change in methodology could be important for expiry-day risk management. If the settlement price is less directly linked to short-period CAS movements, it may reduce the chance of sudden option price spikes in the final minutes.