Sebi overhauls closing auction framework with new VWAP settlement rules

The Securities and Exchange Board of India (Sebi) has unveiled a revised closing auction session (CAS) framework aimed at enhancing the efficiency and transparency of derivatives market settlement. The key modification involves adopting the last 30-minute volume-weighted average price (VWAP) as the settlement mechanism for derivative contracts, replacing the existing methodology.

Under the new framework, the final 30 minutes of the trading session will serve as the reference period for calculating VWAP-based settlement prices. This approach is designed to ensure that settlement values more accurately reflect prevailing market conditions during the closing stages of trade, potentially reducing price volatility and manipulation risks associated with settlement procedures.

The regulatory changes also encompass modifications to trading hours for derivatives markets, though specific details regarding the adjusted timings remain to be detailed in subsequent circulars. The implementation of these reforms has been scheduled for December 7, 2026, providing market participants with a sufficient transition period to align their operations and risk management systems with the new requirements.

Market analysts view the revisions as part of Sebi's ongoing efforts to strengthen market infrastructure and investor protection mechanisms. The regulator has indicated that these changes will facilitate more orderly price discovery and settlement processes, particularly in the derivatives segment, which has witnessed substantial growth in participation and trading volumes in recent years.

Brokerages and trading firms are expected to receive detailed implementation guidelines and technical specifications in the coming months to ensure smooth adoption of the new CAS framework across all market participants.