The Securities and Exchange Board of India (SEBI) has announced a major overhaul of the Closing Auction Session (CAS) that will affect how derivative contracts settle on expiry days. The change comes as part of a broader effort to improve price discovery and reduce post‑expiry volatility in the equity market. Under the proposal, traders will have two pathways to determine the settlement price on expiry.
The first option, slated to take effect after a one‑year transition period, would use a blended Volume‑Weighted Average Price (VWAP) that incorporates both intraday and auction trades. The second option keeps the status‑quo Continuous Trading System (CTS) VWAP, which relies solely on the auction phase. For retail investors, the choice between a blended VWAP and the existing CTS VWAP could influence the final price at which Nifty and Sensex futures close, thereby affecting hedging costs and the basis between spot and futures markets.
A more inclusive VWAP may smooth price swings, while the current method could keep tighter alignment with real‑time market flows. The new framework will be rolled out in phases, with market participants required to adapt their trading strategies accordingly. Investors should monitor the announcement for any changes in the settlement calendar and be prepared for potential adjustments in their portfolio rebalancing activities.