SEBI's closing auction rewrite: what changes on 7 December 2026

From 7 December 2026, an F&O stock will have two different end-of-day numbers on its expiry day: an official closing price set by the closing auction, and a settlement price for its futures and options taken from the average of the last 30 minutes of trading. SEBI's circular of 15 October puts derivatives settlement back on a 30-minute volume-weighted average price (VWAP), ten weeks after tying it to the auction on 3 August, and cuts the auction itself from 20 minutes to 10.

I wrote the guide to the closing auction on 5 October, when the August rules were the only rules. This piece covers what changes, why, and what the change does to a settlement price, with a worked example.

Two numbers on expiry day, not one

Since 3 August, the closing auction has done two jobs for stocks in the F&O segment. It sets the official closing price in the cash market, and that same price has been used to settle expiring stock and index futures and options. Outlook Money summarises the August framework as requiring "expiring stock and index derivatives contracts to be settled using closing prices determined through CAS".

The 15 October circular splits those jobs. The auction keeps the first. The second goes back to an average of trades: expiring contracts will settle on the VWAP of the underlying in the final 30 minutes of continuous trading in the cash market. For index contracts, according to Kotak Neo and HDFC Sky, the exchanges will work out the index's settlement value from the 30-minute VWAPs of the constituent stocks.

So on an expiry day after 7 December, a stock's settlement price will come from trades between 3:00 and 3:30 PM, and its official close from an auction that starts at 3:30 PM. There is no reason for the two to match, and anyone comparing an option's settlement with the stock's published close will need to remember which is which.

Old rules and new rules, side by side

The August column comes from the NSE circular as summarised by HDFC Sky and Geojit; the December column from the reports of the 15 October circular by HDFC Sky, Kotak Neo, Business Today and Outlook Money. Kotak Neo adds that market orders can't be modified or cancelled once the limit-only phase starts at 3:36 PM, and lists a post-close session from 3:50 to 4:00 PM at closing prices.

Two smaller points. Continuous trading in the cash market runs from 9:15 AM to 3:30 PM under the new timetable, Business Today reports, so the auction no longer cuts into the last quarter of an hour of normal trading. And the rules for carrying unexecuted orders into the new session take effect later, on 8 February 2027. Kotak Neo reports that most unexecuted limit orders will carry forward, stop-loss orders and orders outside the price band will not, and unexecuted iceberg orders will be converted into fully disclosed limit orders unless the participant opts out.

Why SEBI went back to an average

The reversal didn't come out of nowhere. SEBI published a consultation paper on 12 September proposing two VWAP-based ways to settle expiring contracts. On 6 October Reuters, as reported by Outlook Money, said the regulator was likely to stop using the auction for derivatives settlement for at least a year. That report described indicative index prices falling more than 2% during auction windows before recovering.

The 15 October circular, Outlook Money wrote, followed the consultation, recommendations from SEBI's Secondary Market Advisory Committee and discussions with the exchanges after strong pushback from the industry. Business Today gave the liquidity side: volume in the auction has averaged around ₹2,900 crore a day since August, below 1% of the market's total daily turnover on all but three days, which were linked to index rebalancing. Its explainer put the problem in one line: "Thin liquidity can amplify price movements when relatively large orders enter the market."

That is the whole argument in miniature. A settlement price decides the final value of every open contract on expiry day. Taking it from a short auction where little volume trades makes it easier for a handful of large orders to move it. Taking it from 30 minutes of normal trading spreads it over far more shares.

A late price against a 30-minute average: the arithmetic

The numbers below are invented to show the mechanics. They are not market data.

Suppose a stock trades three times in the final 30 minutes of its expiry day:

The 30-minute VWAP is total value divided by total shares: ₹22,61,000 ÷ 4,500 = ₹502.44.

Now take the late trade out. The VWAP of the first two trades is ₹20,06,000 ÷ 4,000 = ₹501.50. The late burst moved the last price by ₹8.00, from ₹502.00 to ₹510.00, but moved the average by only ₹0.94. That is the property SEBI is relying on: a small amount of volume at an unusual price carries a small weight.

For the auction's own reference price, the new rules use only the last 15 minutes. If the second and third trades fell in that window, the reference price would be ₹17,61,000 ÷ 3,500 = ₹503.14, closer to the late price because the window holds fewer shares.

Here is why this matters on expiry. Take a ₹500 call option on this stock, held to expiry. Its value at settlement is the amount by which the settlement price exceeds the strike:

• settled on the 30-minute VWAP of ₹502.44, it is worth ₹2.44 a share;
• settled on a single late price of ₹510.00, it would be worth ₹10.00 a share.

The difference, ₹7.56 a share, comes entirely from which price the settlement rule picks. Under the August rules the settlement price was a single auction price, not a trade like the one in this example, but the concern is the same one Business Today described: when little volume trades, a few large orders can produce a single price like ₹510, and an average over 30 minutes gives them far less weight.

The dates a backtest now has to know

If you test anything that holds futures or options into expiry, the settlement method now has three periods:

A backtest that works out expiry values from minute bars will match the first and third periods reasonably well, because you can rebuild a VWAP from those bars if you have the volume. It won't match the middle period, when the settlement price came from an auction you can't rebuild from continuous trades. Mixing the two quietly is the kind of error I described in how to backtest an intraday strategy: the numbers look right and are measuring a different thing.

The cash-market close is a separate series and stays auction-based for F&O stocks throughout. If your history uses official daily closes, nothing changes on 7 December except the auction timetable. If you exit positions late in the day, the timetable is the part to check: from December, the auction begins after 3:30 PM rather than at 3:15 PM, and index options stop trading at 3:30 PM on their own expiry day. The broader picture of how expiry days behave is in what changes on expiry days.

What doesn't change before December

Until 7 December, the August rules stay in force: the auction runs from 3:15 to 3:35 PM, derivatives trade until 3:40 PM, and expiring contracts settle on the auction price. That covers every remaining expiry in October and November, including the monthly expiry on 27 October.

The closing auction guide describes how the current auction works phase by phase. Its timings are correct until 6 December, and this piece is the reference after that. The day the circular was reported is covered in the post-market report for 16 October.

Sources

• SEBI circular of 15 October 2026, as reported by HDFC Sky, Kotak Neo, Outlook Money and Business Today
• Reuters report of 6 October on the likely reversal: Outlook Money
• The August rules: NSE circular NSE/CMTR/74466, as summarised by HDFC Sky and Geojit
• Worked example: invented trades, my own arithmetic

This guide explains exchange rules for information only. It is not investment advice or a recommendation to buy or sell any security. I am not registered with SEBI as an investment adviser or research analyst.