India’s market regulator, the Securities and Exchange Board of India (SEBI), has decided to review the way settlement prices for derivative contracts are set on expiry days. The move comes after concerns from traders and other market participants about the new Closing Auction Session, or CAS.
The news came on September 3, 2026, and quickly became a major market story on September 4. Shares of several capital-market companies rose after the announcement. BSE, Angel One, Groww, Nuvama Wealth Management and Motilal Oswal were among the stocks that saw strong demand. Some of these shares rose as much as 8% during the day.
The main issue is simple. Under the new system, the closing price set through CAS also forms the base for the settlement price of derivative contracts on expiry. A sharp move during this short auction period can therefore have a large effect on futures and options.
SEBI has not yet announced the final changes. The regulator said it may propose changes after it reviews the experience from the first period of CAS. A consultation paper is expected in about a week.
What Is the Closing Auction Session?
SEBI introduced the Closing Auction Session in the equity cash market from August 3, 2026. The purpose of CAS is to set the closing price of eligible stocks through an auction process.
Under this system, buy and sell orders come together during a short auction period. The exchange then finds a price based on demand and supply. This price becomes the official closing price for the stock.
The change replaced the earlier method that used a 30-minute volume-weighted average price, or VWAP, for the closing price. The new system was meant to improve price discovery and create a more structured way to set the final market price.
However, the connection between CAS and derivative settlement has created a new problem. When the cash-market price moves sharply during the auction, the same move can affect futures and options settlement.
This became a major concern after the market action on September 3.
Why the September 3 Move Created Concern
The strongest reason behind SEBI’s review was the sharp move in the Sensex during the CAS period on September 3.
The Sensex moved from around 76,510 at 3:17 pm to about 74,373 at 3:20 pm. This was a very large move within only a few minutes. The sudden change had a major effect on Sensex put options.
Some option prices rose several times within minutes. The 76,600 put moved from Rs 102 to Rs 446, while the 76,400 put rose from Rs 45 to Rs 246.
Reuters also reported that premiums on some BSE Sensex put options jumped by 400% to 500% during the CAS period. The indicative Sensex close had briefly fallen about 2.5% before the index recovered. The Sensex eventually closed only 0.55% lower at 76,152.86 points.
This gap between the short-term move and the final close raised serious questions among market participants.
For a trader with an option position close to expiry, even a few minutes of extreme price movement can create a very large change in profit or loss. If the move comes from the auction itself, traders may also find it hard to manage their risk.
Why Expiry Days Are More Sensitive
Expiry days are already among the most active and volatile days in the derivatives market.
Traders have to close old positions, adjust hedges and manage their risk before contracts expire. Options that are close to their strike price can react very fast to changes in the underlying index.
The CAS system added another factor to this process.
A sharp move in the final auction can change the cash-market closing price. If that same price becomes the derivative settlement price, the effect can move directly into futures and options.
This is the key issue that SEBI now wants to examine.
Market experts do not expect the regulator to simply remove CAS. The bigger possibility is a change in the link between the CAS closing price and derivative settlement.
What SEBI Plans to Do
SEBI has said that it received feedback from several market participants and stakeholders after the first period of CAS.
The regulator has now decided to review the settlement price method for derivative contracts on expiry. It may suggest changes after this review.
A consultation paper should come out in about a week. That paper is likely to give more details about the possible changes and allow market participants to share their views.
At this stage, SEBI has not given a final formula for derivative settlement.
That means traders, brokers, exchanges and investors will have to wait for the consultation paper before they know exactly what could change.
Capital-Market Stocks Get a Boost
The SEBI announcement had an immediate effect on several capital-market stocks.
BSE shares rose 5% to a day high of Rs 3,466. Angel One shares gained 8% to Rs 308. Motilal Oswal rose more than 2% to Rs 1,038, while Groww gained more than 3% to a day high of Rs 196.
Other market-related names also moved higher. NDTV Profit reported that Anand Rathi Share & Stock Brokers rose 1.65% and Multi Commodity Exchange of India gained as much as 1.13% during the day.
The rise in these shares shows how important the settlement issue has become for the wider capital-market sector.
If SEBI changes the rules in a way that makes expiry sessions more stable, brokers and exchanges could see better trading conditions. Lower uncertainty could also help traders return to the market.
Trading Volumes Are Another Concern
The issue is not limited to sudden price moves.
The introduction of CAS has also come with a decline in equity derivatives turnover. According to an Economic Times report, NSE’s total monthly equity derivatives turnover stood at Rs 34.48 lakh crore in August, the lowest since November 2023. BSE’s August turnover stood at Rs 32.2 lakh crore, the lowest since June 2025.
The lower activity has raised concern among market participants because uncertainty around the last part of the trading day can make some traders more careful.
Option writers, in particular, may reduce their positions if they feel that the final settlement price can change sharply within a very short period.
That can reduce liquidity and make it harder for traders to enter or exit positions at comfortable prices.
Will SEBI Remove CAS?
For now, there is little sign that SEBI wants to remove CAS completely.
The regulator’s review focuses on the settlement price methodology for derivatives, not the entire Closing Auction Session. Market experts also expect SEBI to keep the auction system but make changes to reduce its effect on expiry settlements.
One possible approach could be to reduce or remove the direct connection between the CAS closing price and the derivative settlement price.
Another idea discussed by analysts is to separate the timing of the CAS from the derivatives expiry process. This could reduce the chance that a sudden auction move has a direct and immediate effect on an expiring option.
However, these are possible solutions, not confirmed SEBI decisions.
What This Means for Traders
For derivatives traders, the review could be positive if it leads to a more stable settlement process.
A better method could reduce the risk of very large price changes during the final minutes of expiry. It may also make it easier for traders to manage positions and hedges.
But traders should not expect expiry days to become completely calm.
Expiry sessions are naturally volatile because of position changes, hedging and the fast movement of options near expiry. A new settlement method may reduce the extra volatility caused by CAS, but it cannot remove normal market risk.
This distinction is important. SEBI is not trying to remove volatility from the derivatives market. The focus is on preventing a short and unusual cash-market move from creating an outsized effect on derivative settlement.
What Investors Should Watch Next
The next major event will be SEBI’s consultation paper.
The paper should provide a clearer view of how the regulator wants to change the settlement method. Traders and institutions will then have an opportunity to study the proposal and share their views.
Investors should also watch trading volumes on NSE and BSE, especially around expiry. The reaction of option prices during the final part of the session will remain important.
The performance of BSE, Angel One, Groww and other capital-market stocks may also depend on how the new rules affect trading activity.
For now, the SEBI review is a sign that the regulator has heard the concerns from the market and is ready to adjust the framework where needed.
A Possible Reset for the Derivatives Market
The CAS system was created with the goal of better price discovery at the close of the cash market. But its first month has shown that a change in market structure can create new risks.
The September 3 Sensex move made that issue clear. A brief fall of about 2.5% during the auction pushed some put-option premiums up by 400% to 500%, even though the Sensex later recovered and ended just 0.55% lower.
SEBI’s review could therefore become an important step for India’s derivatives market.
The regulator now has a chance to keep the benefits of CAS while reducing its impact on expiry-day settlements. The consultation paper next week should give the market its first clear idea of what comes next.
Until then, traders and investors will likely remain alert to every sharp move near the market close.
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