SEBI to issue closing auction rules for derivatives within a week, says Tuhin Kanta Pandey

What happened with SEBI closing auction rules

The Securities and Exchange Board of India will release revised guidelines for derivatives settlement during closing auction sessions within about a week, chairman Tuhin Kanta Pandey announced on Saturday.

Speaking at an event organised by the Bombay Stock Exchange Brokers' Forum in Mumbai, Pandey said the market regulator is currently processing feedback received on its recent consultation paper.

SEBI introduced the Closing Auction Session mechanism on 3 August to determine daily closing prices for selected futures and options stocks, replacing the earlier volume-weighted average price method. However, within a month of operation, market participants raised concerns over abrupt price swings and uncertainty on expiry days.

Options proposed for derivatives settlement

In response to market feedback, SEBI issued a consultation paper proposing two primary options for calculating expiry-day settlement prices for stock and index derivatives.

The first option proposes a blended volume-weighted average price calculated using trades from the final 30 minutes of the continuous trading session and the 10-minute closing auction session.

The second option suggests retaining the traditional calculation based solely on the final 30 minutes of continuous trading for at least a year before considering a shift to the blended model.

SEBI has also proposed stopping the real-time dissemination of the indicative index value during auction sessions to prevent traders from mistaking estimated values for actual index levels. It plans to retain indicative equilibrium prices for individual stocks.

Proposed timing adjustments include shortening the transition delay between continuous trading and the closing auction from five minutes to one minute, while reducing the post-auction derivatives trading window from ten minutes to five minutes.

Other SEBI regulatory changes planned

Beyond derivatives settlement, Pandey outlined several regulatory initiatives aimed at modernising Indian capital markets.

SEBI will soon issue a circular on simplifying digital onboarding for non-resident investors, following more than 400 comments received on its proposals. Guidelines governing the responsible use of artificial intelligence and machine learning in market operations are also expected shortly, featuring human oversight requirements, data controls and kill switches.

The regulator is additionally reviewing depository regulations to simplify compliance and strengthen fraud prevention, while introducing a graded compliance framework for stockbrokers based on their size and technology exposure. Proposals to streamline interoperability for tender offers and buybacks are targeted for rollout by November 2026.