Sebi has replaced closing-auction-based settlement for expiring derivatives with the 30-minute VWAP method from December 7, 2026, while moving the closing auction session to a separate 3:30 pm to 3:40 pm window.
What Sebi Changed in Its October 15 Circular
Sebi issued a circular dated October 15, 2026 that modifies the Closing Auction Session (CAS) framework it introduced through a January 16 circular. The CAS was rolled out in the equity cash segment on August 3, 2026 for securities that have futures and options contracts. Under the original framework, expiry-day settlement prices for stock and index derivatives were based on the closing prices discovered in that auction.
That link is now being undone. From December 7, expiring derivatives will settle on the volume-weighted average price (VWAP) of the final 30 minutes of the continuous trading session, the method traders knew before the auction was introduced. The table below compares the two frameworks.
| Feature | Current framework | From December 7, 2026 |
| Expiry settlement price | Closing price from the auction | VWAP of the last 30 minutes of continuous trading |
| Closing auction window | 3:15 pm to 3:35 pm | 3:30 pm to 3:40 pm, as a separate 10-minute session |
| Expiring index contracts on expiry day | Not covered in the reports reviewed | Stop trading at 3:30 pm |
| Stock derivatives | Not covered in the reports reviewed | Trade until 3:45 pm, including on expiry day |
| Post-close session | Not covered in the reports reviewed | 3:50 pm to 4:00 pm, at the closing price |
How the 30-Minute VWAP Settlement Works
VWAP is the average trade price over a period, weighted by the number of shares traded. For index derivatives, the settlement price will use the VWAPs of the index’s constituent stocks during the final 30 minutes of continuous cash market trading. For stock derivatives, clearing corporations will use the underlying stock’s VWAP over the same period across all exchanges.
Two fallback rules apply. If a security has no trades in that window, the last traded price of the day is used. If it has no trades at all during the day, the previous closing price, adjusted for corporate actions where relevant, is the reference.
Because the settlement window ends at 3:30 pm, trades in the closing auction no longer feed into expiry settlement. The auction continues to set closing prices for the shares it covers, but it stops deciding where expiring contracts settle.
Why Sebi Reversed Course
Sebi announced on September 3 that it would review the settlement methodology in light of the CAS rollout, citing feedback received during the initial period. On September 12, it released a consultation paper with two options for expiry-day settlement: a blended VWAP approach and an interim method based on continuous-session VWAP. The regulator described the interim option as providing continuity with the familiar method and a stable transition to the auction.
Business Standard, citing Reuters, reported that the decision followed trader concerns about sharp price swings. Sebi retained the continuous-session VWAP method, following a review involving its Secondary Market Advisory Committee and discussions with stock exchanges, according to coverage of the circular.
Other Changes in the Closing Auction Framework
The revised circular goes beyond settlement. Reports describe the auction as having three phases: an opening minute to set a reference price and bring in eligible orders, a phase for all order types, and a final round for limit orders only.
- Stop-loss orders and orders priced outside the auction price band stay out of the auction.
- New iceberg and stop-loss orders are not allowed during the session.
- Margin requirements apply at the individual order level during the auction.
- The handling of unexecuted limit and iceberg orders moving from continuous trading into the auction takes effect later, on February 8, 2027.
Stock exchanges and clearing corporations have been directed to update their standard operating procedures, in consultation with Sebi, within seven days of the circular.
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What Analysts and Brokers Are Saying
Jefferies said the VWAP decision is a bigger positive for brokers than for exchanges, according to Business Standard. Reuters reported that analysts expect derivatives volumes may recover after the settlement rule changes. These are brokerage and analyst views on business impact and are not predictions made by Findoc.
Key Dates and Timings to Note
For anyone who trades index or stock derivatives, the practical points are the dates and the clock times. The new auction timing, VWAP settlement and revised derivatives trading hours apply from December 7, 2026. The treatment of pending limit and iceberg orders follows on February 8, 2027.
On expiry days, expiring index contracts will stop trading at 3:30 pm, fifteen minutes before other derivatives. Stock derivatives keep trading until 3:45 pm. Traders should check their broker’s and exchange’s updated notices once the standard operating procedures are published.
