The Government is likely to extend Securities and Exchange Board of India (SEBI) Whole-Time Member Kamlesh Chandra Varshney's tenure by six months to one year as the market regulator works through issues arising from the newly introduced Closing Auction Session (CAS). According to sources in the finance ministry, "Given the issues that have emerged with CAS, it was felt that continuity was important for the market regulator at this stage". The formal announcement is expected within a week, with Amarjeet Singh, the other WTM whose three-year term ends this month, not expected to receive an extension. Varshney took charge as SEBI's WTM on September 20, 2023, while Singh took charge on September 1, 2023. Both officials were eligible for reappointment, subject to prescribed age limits.
The Closing Auction Session (CAS) mechanism continues to create extreme market disruption, with Sensex experiencing a dramatic 2.5% swing during Thursday's closing auction session on September 3, 2026. According to Business Standard, the indicative Sensex level briefly fell about 2.5% during the CAS before recovering to close 0.55% lower at 76,152.86. This latest incident comes just a week after the index witnessed a similar dislocation during the monthly futures and options expiry, when the Sensex's indicative closing level had plunged more than 2,500 points, or 3.4%, during CAS before recovering. The violent swings spilled over into the derivatives market, with Sensex put-option premiums surging 400-500% within minutes during the September 3 session. The recurrence of such sharp moves on expiry days is adding to concerns over liquidity and price discovery during the new closing mechanism.
Liquidity remains a critical concern with BSE's average daily CAS turnover standing at just ₹54.34 crore, equivalent to around 0.50% of its average daily cash-market turnover of ₹10,970 crore. As per The Financial Express, this is also a fraction of the average cash-market turnover on the National Stock Exchange (NSE), which stands at ₹1.19 lakh crore, with the CAS average at ₹2,825 crore. Gaurav Arora, head of research at SAHI, attributed Thursday's plunge to a large one-sided sell order hitting an almost empty order book. "Market orders are allowed between 3:20 and 3:25, and a market sell with nothing behind it falls straight to the lowest buy price available. Expiry flow made it heavier," Arora explained. Low trading volumes on BSE amplified the move, while the rapid recovery suggested that the order was either withdrawn or fresh buyers stepped in.
Market regulator Securities and Exchange Board of India (SEBI) announced on Thursday that it will revise the settlement price mechanism for derivatives contracts for Closing Auction Session (CAS). According to The Times of India, the decision comes exactly a month after CAS was rolled out on August 3, with SEBI set to issue a consultation paper for revising the mechanism. The regulator stated that during the past month, introduction of CAS created significant market volatility and at times led to closing price discrepancies between two exchanges. In contrast, globally, CAS is used for better closing price discovery. SEBI had shifted to CAS from the earlier system of Volume-weighted Average Price (V-WAP) for all stocks traded in the derivatives segment. The regulator conducted several meetings with market participants, stock exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations and foreign portfolio investors for feedback on the mechanism following the impact on the market during the first month of its operation. As per The Economic Times, a consultation paper is expected in about a week following the latest market chaos.
The main concern centers on the direct linkage between CAS closing prices and derivative settlements, which has amplified expiry-day volatility. According to The Economic Times, CAS was introduced in the equity cash segment from early August this year to determine the closing price of securities, with the price discovered through CAS also serving as the basis for settlement prices of derivative contracts on expiry. Ishan Tanna of Ashika Equities explained that "Since August 3, the cash-market closing price is discovered through a 20-minute Closing Auction Session, replacing the earlier 30-minute VWAP method. That CAS price also feeds into derivatives settlement." The September 3 episode demonstrated this risk clearly, as some Sensex put-option premiums jumped 400-500%, with the 76,600 put rising from ₹102 to ₹446, while the 76,400 put moved from ₹45 to ₹246. Market experts suggest the more likely step may be to reduce the direct link between the CAS close and derivative settlement, with one possible solution being closing the CAS window after derivatives trading closes to reduce the risk of sudden auction-driven moves feeding into expiry settlement prices.
Market experts believe the Closing Auction Session (CAS) mechanism is likely to remain despite ongoing volatility concerns, with the focus shifting to refining rather than eliminating the system. Venkatachalam Shunmugam, Partner at MCQube, stated that "CAS is going to remain there and they are going to strengthen the CAS" during a recent interview with CNBC TV18. Shunmugam suggests potential tweaks to the 3% price band mechanism, suggesting SEBI may consider reducing it to less than 2% if the current 3% band is creating excessive volatility. According to The Economic Times, analysts expect the regulator to consider delinking derivative settlements from CAS closing prices rather than scrapping the mechanism altogether. Ishan Tanna noted that "a change in methodology should reduce CAS-driven sharp expiry-day swings, but it will not eliminate normal expiry volatility" as expiry sessions remain inherently volatile due to position unwinding and contract rollovers. The better solution, as suggested by experts, would be fixing the linkage between cash-market closing price and derivatives settlement rather than removing CAS itself, with a revised framework expected to smartly reduce the severity of expiry-day swings that come from CAS price discovery while maintaining the mechanism's intended benefits for closing price discovery.
