SEBI reviewing derivatives expiry settlement framework post-CAS rollout: Chairman Pandey
Synopsis
SEBI Chairman Tuhin Kanta Pandey has signalled a review of how derivatives settlement prices are determined on expiry days — a direct consequence of the Closing Auction Session rollout. With FPIs now in commodity derivatives and a string of capital market reforms in motion, the regulator is reshaping market architecture on multiple fronts simultaneously.
Key Takeaways
SEBI is reviewing the derivatives expiry settlement price framework following the rollout of the Closing Auction Session (CAS) mechanism.
Chairman Tuhin Kanta Pandey made the announcement at the CPAI 12th International Convention in New Delhi on 3 October 2026 .
Foreign portfolio investors (FPIs) have been granted access to non-agricultural commodity derivatives to improve liquidity and price discovery.
SEBI is examining position limits for non-agricultural commodity contracts to deepen market liquidity without compromising risk management.
Capital market reforms include standardised prospectus disclosures , bond distribution deepening, and reintroduction of open-market share buybacks via stock exchanges.
SEBI will continue stakeholder engagement on GST-related issues affecting commodity delivery participants on exchange platforms.
Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey on Saturday, 3 October 2026, said the regulator is actively examining concerns around the settlement price framework for derivatives contracts on expiry days. The review follows the rollout of the Closing Auction Session (CAS) mechanism, which has prompted fresh scrutiny of how settlement prices are determined at the end of expiry cycles.
Why the Review Is Happening
The CAS framework was introduced to improve end-of-day price discovery by matching buy and sell orders at a single equilibrium price, replacing reliance on volume-weighted average prices. However, its rollout has raised questions about its interaction with derivatives settlement on expiry days — a technically sensitive juncture when pricing accuracy directly affects the payoffs of options and futures contracts.
Pandey, speaking at the Commodity and Capital Market Participants Association of India (CPAI)'s 12th International Convention in New Delhi, said India needs markets that can 'efficiently mobilise capital, manage risk and inspire trust among investors.' The derivatives settlement review is positioned within that broader mandate.
Deeper Markets, Stronger Mechanisms
SEBI's ambitions extend beyond the immediate CAS-linked review. The regulator is seeking deeper and more liquid cash markets, stronger securities borrowing and lending mechanisms, and more efficient hedging and arbitrage opportunities. These goals are aimed at sharpening interaction between the cash and derivatives segments — a structural priority that has gained urgency as derivatives volumes have dwarfed cash market turnover in recent years.
In the commodity derivatives space, SEBI is examining position limits for non-agricultural contracts with the stated aim of improving liquidity and market depth without compromising risk management standards. Pandey also confirmed that the regulator would continue engaging with stakeholders on Goods and Services Tax (GST)-related issues affecting participants in commodity deliveries through exchange platforms.
FPI Access and Capital Market Reforms
Foreign portfolio investors (FPIs) have been given access to non-agricultural commodity derivatives — a move SEBI expects to improve liquidity and price discovery while retaining safeguards for physical markets. The move is part of a wider push to broaden market participation and attract institutional depth.
On the capital markets side, Pandey highlighted a suite of reforms: concise and standardised prospectus disclosures for retail investors, measures to deepen the bond distribution ecosystem, greater flexibility for investors in corporate bonds, REITs and InvITs, and the reintroduction of open-market share buybacks through stock exchanges. These changes are intended to make participation simpler and less opaque for smaller investors.
What Comes Next
SEBI has not yet announced a timeline for the derivatives settlement framework review or any resulting rule changes. The regulator's ongoing stakeholder engagement on GST and commodity position limits suggests further consultations are expected before formal amendments are made. Markets and participants will watch closely for any circulars or consultation papers that follow from today's remarks.
Point of View
But its unintended friction with derivatives settlement on expiry days reveals how interconnected — and fragile — these market structures can be. SEBI is right to examine the issue, but speed matters: every expiry cycle where settlement pricing is uncertain is a cycle where arbitrageurs extract value at retail investors' expense. The broader reform agenda — FPI access to commodity derivatives, simplified bond distribution, open-market buybacks — reflects a regulator trying to move on several structural fronts at once, which raises genuine execution and sequencing risk. SEBI would do well to prioritise and publish a clear consultation timeline rather than leaving markets guessing.
NationPress
3 Oct 2026
Frequently Asked Questions
Why is SEBI reviewing the derivatives expiry settlement framework?
SEBI is reviewing it because the rollout of the Closing Auction Session (CAS) mechanism has raised concerns about how settlement prices for derivatives are determined on expiry days. The CAS replaced volume-weighted average pricing with a single equilibrium price, and its interaction with expiry-day derivatives settlement has prompted regulatory scrutiny.
What is the Closing Auction Session (CAS) and why does it matter?
The CAS is a mechanism introduced by SEBI to improve end-of-day price discovery by matching buy and sell orders at a single equilibrium price. It matters because the price it produces is now used as a reference for derivatives settlement on expiry days, creating a direct link between cash market auction outcomes and futures and options payoffs.
What did SEBI Chairman Tuhin Kanta Pandey say about commodity derivatives?
Pandey said SEBI is examining position limits for non-agricultural commodity contracts to improve liquidity and market depth. He also confirmed that foreign portfolio investors have been given access to non-agricultural commodity derivatives to boost price discovery, and that SEBI will continue engaging stakeholders on GST issues affecting commodity delivery participants.
What capital market reforms did SEBI announce?
SEBI outlined reforms including concise and standardised prospectus disclosures for retail investors, measures to deepen the bond distribution ecosystem, greater investor flexibility in corporate bonds, REITs and InvITs, and the reintroduction of open-market share buybacks through stock exchanges.
When will SEBI finalise the derivatives settlement review?
SEBI has not announced a specific timeline for completing the derivatives settlement framework review. Further stakeholder consultations are expected before any formal rule changes are made, and markets will watch for circulars or consultation papers in the coming weeks.
