SEBI explores alternative CAS window and IIP removal to improve market liquidity

The Securities and Exchange Board of India (SEBI) has tabled several reforms targeting the Closing Auction Session (CAS) and derivatives settlement mechanisms, aiming to enhance market liquidity and price discovery. The consultation paper proposes discarding the Indicative Index Value (IIV) from the CAS while still providing the Security‑Level Indicative Equilibrium Price (IEP). SEBI stresses that the IEP is a reference indicator and does not correspond to actual trade prices, a clarification intended to prevent participants from basing trades on misleading signals.

For settlement of index and single‑stock derivatives, SEBI outlines two paths. The primary proposal introduces a blended volume‑weighted average price (VWAP) that aggregates trade information from the last 30 minutes of the Continuous Trading Session (CTS) and the final 10 minutes of the CAS. This method weights each trade by its true traded value, capturing a broader market picture. As a fallback, the regulator suggests retaining the current CTS‑VWAP calculation until a hybrid model proves effective over at least a year, contingent on adequate liquidity and participant readiness.

Timing revisions include two options. Option A allows CTS to run for CAS‑eligible stocks until 3:30 pm, followed by a brief 1‑minute CAS (3:31 pm‑3:40 pm) and extends derivatives trading to 3:45 pm. Option B trims CTS to end at 3:15 pm, introduces a 10‑minute CAS, and caps derivatives trading at 3:30 pm. Both scenarios compress the CTS‑to‑CAS handover to a maximum of one minute and cut the post‑CAS derivatives window from ten minutes to five minutes, a change supported by feedback that a narrower window is sufficient for market participants.