CAS stays, but derivatives settlement may change, says Sebi chief Tuhin Kanta Pandey after another 1,000-point Sensex swing

Sebi Chairman Tuhin Kanta Pandey affirmed on Friday that the Closing Auction Session (CAS) remains unchanged despite traders' concerns over volatile expiry-day swings tied to the new closing-price mechanism. The regulator is not considering reverting to the previous system, Pandey stated firmly. This assertion comes after the Sensex experienced a sharp intraday movement of over 1,000 points during expiry-day trading, ultimately closing 138 points higher and reversing its losses for the day.

Pandey also confirmed that global index provider MSCI reported a successful rebalancing under the new CAS framework. On NSE, the CAS session saw substantial institutional activity during MSCI's rebalancing at the end of August, accounting for nearly 22% of total cash-market turnover. While the efficacy of CAS in handling high volumes is acknowledged, the primary concern for market participants remains the volatility of CAS-induced closing prices on expiry days.

Traders worry that sudden changes in closing auction prices could precipitate significant price movements in index options, particularly on expiry days. The issue gained renewed attention following Thursday's volatile session, where despite a massive 1,000-point rally in the Sensex, the index only closed 138 points higher, highlighting the CAS's potential impact on final settlement prices in derivatives.

Since its introduction, traders have complained that CAS can cause abrupt shifts in index options, especially on expiry days. This concern is amplified for Sensex and Nifty derivatives due to the cash-market closing price influencing the settlement price of expiring contracts. CAS was implemented to replace the earlier pricing method, which utilized the volume-weighted average price of trades in the final 30 minutes of the trading day.

The new system collects orders post-regular session and matches them at a single closing price. Sebi maintains that CAS enhances price discovery and aligns with global market practices. However, critics argue that the system requires stronger safeguards against the potential for a few large orders during the auction to sharply alter indicative prices.

Sebi is currently reviewing the settlement price methodology for derivatives in light of the CAS rollout. Earlier this month, the regulator announced it would examine the settlement price calculation method following CAS implementation. Sebi informed that CAS has been in effect since August 3, 2026, and the CAS-discovered closing price is currently used to determine derivative settlement prices on expiry days.

The regulator has received substantial feedback from market participants on these CAS-based settlement prices and has engaged in discussions with exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations, and foreign portfolio investors. Sebi is anticipated to release a consultation paper addressing the issue, potentially exploring whether derivatives should continue to be settled based on the CAS-discovered closing price or require a distinct method to mitigate expiry-day volatility.