SEBI to Reinstate Volume-Weighted Average Price for Derivatives from December 7

The Securities and Exchange Board of India (SEBI) has announced a significant change in the settlement process for derivatives contracts, reverting to the volume-weighted average price (VWAP) method starting December 7, 2026. This decision comes in response to trader concerns regarding increased volatility and sharp price fluctuations observed after the implementation of the closing auction session (CAS) on August 3. The VWAP method will utilize the average price from the last 30 minutes of regular trading to determine settlement prices on expiry days.

In August, the total derivatives turnover on the National Stock Exchange of India (NSE) experienced a substantial decline of 19.2% month-on-month, falling to ₹34.48 trillion ($363.37 billion). This drop is attributed to the introduction of CAS, which led to heightened volatility in stock and index prices, prompting many traders to reduce their trading activities. Additionally, tighter regulations on proprietary trading and increased transaction taxes have contributed to the downturn in volumes.

Brokerage firm Jefferies has indicated that the changes to the CAS are expected to mitigate expiry-day volatility, which could benefit brokers whose orders have been adversely affected by the recent trading environment. Analysts are cautiously optimistic about the potential for trading volumes to rebound to levels seen before the CAS was introduced, although the exact extent of this recovery remains uncertain.

Raj Deepak Singh, vice president of derivatives and quantitative research at ICICI Direct, noted that options traders who had previously distanced themselves from the market might return as a result of the new settlement rules. Under the revised guidelines, trading in index derivatives will continue until 3:45 p.m. IST, except on expiry days when it will conclude at 3:30 p.m. IST.

Following the announcement, shares of exchange operators BSE and NSE saw declines of 1.7% and 0.6%, respectively, while brokerage firms experienced mixed results. Angel One's shares fell by 2.7%, while Groww's shares increased by 1.2%. Market participants are now closely monitoring these developments to gauge their impact on trading dynamics moving forward.