SEBI's Derivatives Consultation Draws Record 20,000 Comments
India's market regulator SEBI received an unprecedented 20,000 public comments on its consultation paper concerning derivatives settlement and the Closing Auction Session.
The Securities and Exchange Board of India (SEBI) received around 20,000 comments on its consultation paper covering derivatives settlement, market timings, and the Closing Auction Session framework. The regulator shared the figures on X after the deadline for submissions passed on October 3, 2026. This volume of feedback is significantly higher than the over 3,500 comments Chairman Tuhin Kanta Pandey cited just a week earlier. It is also more than three times the 6,000 comments SEBI received earlier in 2024 on a separate consultation aimed at curbing excessive futures and options (F&O) trading.
Context of the consultation
The consultation paper, released on September 12, follows SEBI's initial experience with the Closing Auction Session (CAS) framework introduced for F&O stocks from August 3, 2026. The CAS mechanism aims to determine closing prices through an auction-based process. The review seeks to address concerns that emerged after CAS was introduced in the equity cash segment, particularly regarding its potential impact on derivatives settlement prices on expiry days. SEBI invited feedback on seven proposals concerning derivatives settlement methods, market trading hours, and certain operational aspects of the closing auction process. Pandey stated the consultation was designed to tackle a specific issue while allowing market participants to suggest alternative approaches.
FIA's position on key proposals
The Futures Industry Association (FIA) submitted its detailed response on October 3. The industry body strongly supported retaining the existing Closing Trade Session (CTS)-only Volume Weighted Average Price (VWAP) as the interim methodology for settling index and single-stock derivatives. It opposed SEBI's proposed blended VWAP methodology, which would combine the final 30 minutes of CTS with the 10-minute CAS. FIA argued the blended method would be difficult to track because the relative weights of CTS and CAS are only known after the auction concludes, while the CTS portion must be executed beforehand. It warned this could create settlement-price mismatches for funds hedging with index futures, arbitrageurs, and investors using derivatives for market exposure. FIA recommended any eventual move to a blended VWAP be linked to a clearly defined liquidity trigger proving CAS has sufficient liquidity for derivatives settlement.
On market timings, FIA supported SEBI's proposed Option A. This option suggests continuous trading in CAS stocks until 3:30 pm, followed by the auction, with derivatives trading continuing until 3:45 pm. The association said the longer continuous session would support price discovery and bring derivatives trading closer to the completion of the cash-market closing process. However, FIA opposed SEBI's proposal to stop disseminating the indicative index value during CAS, citing reduced transparency and difficulty in assessing relationships between the index, its constituents, and derivatives.
The consultation also proposed several operational changes to the CAS framework. These included tighter restrictions on cancelling orders placed beyond 1% of the reference price, changes to the treatment of unexecuted Iceberg orders, and a shorter transition period between continuous trading and the auction. While FIA raised concerns about some of these operational changes, particularly the proposed order-cancellation restrictions, many other respondents supported them, expecting the measures to reduce distortion and potential manipulation in the closing auction.
Regulatory process and next steps
SEBI's consultation paper presented two primary options for determining the derivatives settlement price.
Separately, Chairman Pandey noted that regulatory support, robust technical infrastructure, and greater participation from market participants would be key for the growth of the corporate bond derivatives market. SEBI will now review all feedback, including the detailed response from the Futures Industry Association, before finalizing its decisions on derivatives settlement methods and market timings.
