If you trade options on Nifty, Bank Nifty, Sensex, or any F&O stock, you've probably heard the term "CAS" a lot lately. In September 2026, SEBI (the Securities and Exchange Board of India) announced it is reviewing how CAS decides the settlement price for derivative contracts on expiry. This came right after a rough expiry session where option premiums on some Sensex puts jumped 400-500% in minutes.

What is CAS, in simple terms?

CAS stands for Closing Auction Session. SEBI introduced it from 3 August 2026 to decide the official closing price of stocks that have F&O contracts on them.
 

Before CAS, the closing price was simply the average price (VWAP) of all trades in the last 30 minutes of the trading day. This system was easy to predict, but it also meant a trader with enough size could nudge the average price by placing orders right at the end of the day.
 

CAS replaces that with a short, structured auction:

• Regular trading for F&O-eligible stocks continues until 3:15 PM.
• Between roughly 3:28 PM and 3:30 PM, a random cutoff closes new orders, so no one knows the exact second the window shuts.
• All buy and sell orders (leftover ones plus new CAS-only orders) are matched to find one single price where the maximum number of shares can trade.
• That single auction price becomes the official closing price — and, importantly, it is also the price used to settle F&O contracts on expiry day.
• The futures and options segment itself keeps trading until around 3:40 PM even after the cash-market auction wraps up.

If you want the full breakdown of how CAS works step by step, we've covered it in detail in our earlier post on how the Closing Auction Session works in 2026.

Why is SEBI reviewing CAS now?

CAS had been live for about a month with no major issues — until expiry day trading on 3 September 2026. During that session, the indicative Sensex closing level briefly dropped around 2.5% inside the auction window. Because option prices react instantly to sharp index moves near expiry, premiums on some Sensex put options spiked by 400% to 500% in a very short time. The index then recovered and finished the day only about 0.55% lower.
 

That gap between the mid-auction swing and the final settlement number is exactly what caused the uproar. Many traders holding options felt the settlement price didn't reflect where the market "actually" was trading just minutes before or after.
 

Following this, SEBI confirmed it is now reviewing the methodology used to calculate derivative settlement prices on expiry, since that price is directly tied to the CAS auction outcome. SEBI has been talking to stock exchanges, brokers, proprietary trading firms, software vendors, mutual funds, industry bodies, and foreign portfolio investors to understand where the process is breaking down. This is separate from the two rounds of public consultation SEBI already ran before CAS was launched, in December 2024 and August 2025.
 

It's worth noting: this review is about how the settlement price gets calculated, not a decision to scrap CAS. SEBI has said the framework was rolled out only after extensive consultation, and the core auction system worked as designed even during the volatile session — it was the price impact on options near expiry that drew the most feedback.

For the wider set of F&O rule changes SEBI has made this year — margins, position limits, and more — see our post on SEBI F&O rules 2026 and what has changed for options traders.

What this means if you trade options

Here's the practical part. Whether or not SEBI changes the settlement formula, a few things are already clear for anyone trading options around expiry:

1. Expiry-day risk near the close has gone up, not down. The auction concentrates a large amount of buying and selling interest into a very short window. When that window moves sharply, out-of-the-money options can swing violently in percentage terms, even if the underlying index barely moves for the day overall.
 

2. Don't assume the last traded price and the settlement price will match. Under CAS, the price your position gets settled at on expiry is the auction price, not necessarily the price you saw on your screen just before 3:15 PM. Positions that look safely OTM going into the auction can occasionally get squeezed by unusual auction-session moves.
 

3. Position sizing near expiry matters more than ever. If you sell options close to the money on expiry day, size your positions with this extra volatility in mind. A sudden 2-3% index move inside a 15-minute auction can translate into a multi-hundred-percent move in short-dated option premiums.
 

4. Keep an eye on SEBI's final circular. Whatever methodology SEBI lands on after this review — whether it tweaks the auction window, adds safeguards, or changes how the settlement price is derived — it will directly affect how your expiry-day P&L gets calculated. Treat this as a live regulatory situation, not a settled one.
 

5. This is a good time to revisit your risk management basics. A large share of retail traders already lose money in F&O even without unusual settlement-price events. If expiry-day volatility is catching you off guard, it may be worth stepping back and strengthening your fundamentals. We cover the common mistakes behind this in why retail traders lose money in F&O in 2026.

Timeline: CAS and the settlement price review so far

• 16 January 2026 — SEBI issues the circular introducing CAS for F&O-eligible stocks, alongside a realignment of the pre-open auction (PCAS).
• 3 August 2026 — CAS goes live in the cash market for F&O-eligible stocks.
• 7 September 2026 — PCAS (pre-open auction) alignment with CAS rules takes effect.
• 3 September 2026 — Sharp expiry-day swing during the CAS window; Sensex put option premiums spike 400-500% before the index recovers.
• 4 September 2026 — SEBI confirms it will review the methodology for determining derivative settlement prices on expiry.
   

Frequently asked questions
 

Q1. Is CAS being removed?
No. SEBI is reviewing how the settlement price is calculated from the CAS auction, not withdrawing the auction system itself.
 

Q2. Does CAS affect all stocks?
No. It currently applies only to stocks that have F&O contracts available on them. Other equity and delivery trades are not affected.
 

Q3. Will my SIPs or mutual fund NAVs change because of this?
Mutual fund NAVs are computed using the closing price, so CAS does affect NAV calculation slightly, but this is considered a minor, mostly positive change for accuracy. It has nothing to do with the settlement-price review, which is specific to F&O expiry.
 

Q4. What should options traders do while the review is ongoing?
Keep position sizes near expiry conservative, avoid assuming pre-auction prices will hold, and watch for SEBI's follow-up circular, which will likely spell out any changes to the settlement methodology.

Learn to trade options the right way
 

Rule changes like this are a reminder that options trading in India is evolving fast, and traders who understand market structure have a real edge over those who don't. If you want to build that foundation properly — from options basics to strategy design and risk management — explore our Futures & Options Trading Strategies course or the more advanced Trade Smart Using Futures and Options (Intermediate + Advanced) program at Empirical Academy.

This article is for educational purposes only and is not investment advice. Please refer to official SEBI circulars for the latest regulatory updates.