The changes follow widespread concerns among traders and brokers over settlement prices, sharp price spikes and low liquidity since CAS became effective on August 3. The regulator announced the revisions after receiving more than 20,000 suggestions on its consultation paper and holding deliberations with the Secondary Market Advisory Committee on Thursday.
Under the revised framework, Sebi has retained the existing methodology for determining the settlement price of index derivatives. The settlement price will continue to be based on the volume-weighted average prices (VWAP) of constituent securities during the last 30 minutes of the CTS, from 3.00 pm to 3.30 pm, in the equity cash segment.
For expiring stock derivatives, clearing corporations will determine settlement prices using the VWAP of the underlying stock during the last 30 minutes of the CTS across all stock exchanges.
Exchanges will provide VWAP and quantity-traded data to clearing corporations and continuously disseminate indicative values to market participants in real time during this period.
An iceberg order is a large order divided into smaller orders, with only a fraction of the total quantity visible in the publicly displayed order book. The revised framework also addresses how unexecuted iceberg orders will be handled when the market transitions from the continuous trading session to CAS.
Under the new timings, CAS will operate as a separate 10-minute session from 3:30 pm to 3:40 pm on all trading days. The order-entry period will close randomly between 3:38 pm and 3:40 pm.
Trading in index derivatives will continue until 3:45 pm on regular trading days. However, contracts expiring on a particular day will stop trading at 3:30 pm. Trading in stock derivatives will continue until 3:45 pm, including on expiry days.
The post-close session in the cash segment will run from 3:50 pm to 4 pm, with trades executed at the closing prices of securities.
Sebi has also specified how unexecuted orders will move from the CTS to CAS. Pending limit orders will generally be carried forward, except for stop-loss orders and orders priced beyond the applicable CAS price bands.
Unexecuted iceberg orders falling within the applicable price bands will be converted into fully disclosed limit orders at a fixed or predetermined price, unless market participants opt out of the conversion when placing the original orders.
These converted orders will have lower time priority than other limit orders carried forward from the continuous trading session but higher priority than limit orders placed during CAS.
The revised framework follows concerns raised by market participants over a blended mechanism that Sebi had proposed in its consultation paper. Several participants questioned the proposal because of low liquidity during the relevant trading window.
Traders and brokers had favoured retaining the 30-minute VWAP methodology, arguing that market participants were more familiar with the mechanism and that it was more transparent and operationally well understood.
The existing CAS framework operates over a 20-minute window, from 3:15 pm to 3:35 pm. The reference-price calculation and transition from CTS to CAS take place between 3:15 pm and 3:20 pm, during which order entry is not permitted.
The subsequent five-minute period allows order entry. From 3:25 pm to 3:30 pm, order entry is restricted to limit orders, while modifications or cancellations of market orders are not permitted. During this period, trading closes randomly in the final two minutes.
Sebi had also proposed prohibiting the cancellation of limit orders placed beyond a 1 per cent range of the reference price during CAS in its consultation paper. However, the regulator did not include this proposed restriction in the final circular.
The revised framework establishes separate CAS timings, retains the 30-minute VWAP-based settlement methodology and defines the treatment and priority of unexecuted limit and iceberg orders, addressing key operational concerns raised by market participants.
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