Investor Statements May Get A Fresh Rulebook, SEBI Likely To Float CAS Consultation Paper: Report

Mumbai: The Securities and Exchange Board of India (SEBI) is likely to release a consultation paper on the Closing Auction Session (CAS) framework, with potential changes focused on how settlement prices of derivative contracts are determined on expiry days, according to a report.

The proposals could be taken up at the SEBI board meeting on September 24, following concerns raised by market participants over sharp price movements during the newly introduced closing auction mechanism.

CAS Set to Stay, Methodology May Change

The regulator is not expected to withdraw the Closing Auction Session. Instead, it could refine the methodology used to calculate settlement prices for derivatives during expiry sessions.

SEBI Chairman Tuhin Kanta Pandey has previously indicated that CAS is here to stay, while acknowledging that concerns raised by market participants are being examined.

Introduced on August 3, CAS ends continuous trading in futures and options-eligible stocks at 3:15 pm. These securities then enter an auction lasting roughly 20 minutes, during which buy and sell orders are matched to establish the official closing price.

Non-F&O shares continue trading until 3:30 pm, while stock and index derivatives remain open until 3:40 pm.

Expiry-Day Volatility Raises Concerns

The new mechanism has drawn attention following unusually sharp movements during derivatives expiry sessions.

During a recent session, the indicative Sensex closing level briefly dropped around 2.5%, triggering a roughly 400-500% surge in some put option premiums during the closing auction.

Nifty put options also recorded multi-fold moves during an expiry-day session.

Traders Flag Execution Risks

Market participants have raised concerns that limited liquidity in the auction could allow a relatively small number of orders to exert significant influence on closing prices.

Analysts also believe CAS has made expiry-day execution more difficult to predict for systematic options strategies.

Any proposed changes to the SEBI CAS framework are therefore expected to focus on improving settlement-price reliability while preserving the closing auction mechanism itself.