SEBI Launches Formula-Based Settlement Rules, Restores F&O VWAP Expiry

The Securities and Exchange Board of India (SEBI) has rolled out two consequential market-structure updates: a streamlined, formula-based enforcement settlement regime effective November 7, 2026, and a rollback to 30-minute VWAP pricing for F&O expiry settlements starting December 7, 2026.

What Happened

Replacing the 2018 framework, the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026 officially took effect on November 7, 2026. The framework applies to promoters, listed companies, directors, and market intermediaries seeking to resolve pending or potential enforcement actions.

Separately, SEBI reversed an earlier plan linking Futures & Options (F&O) expiry settlements to the newly introduced Closing Auction Session (CAS) following volatility and pricing anomalies, restoring the 30-minute Volume-Weighted Average Price (VWAP) methodology from December 7, 2026 (with order-transition rules following on February 8, 2027).

Key Regulatory & Market-Structure Changes

• Formula-Based Settlement Calculator: SEBI's new settlement regime replaces opaque matrices with a transparent formula separating wrongful gains from base amounts, backed by an online filing portal and digital calculator.
• Fast-Track Thresholds: Minor violations and monetary cases up to ₹10 lakh (without disgorgement or remedial terms) qualify for fast-track disposal.
• F&O Expiry VWAP (Dec 7): Final settlement prices for expiring index and stock derivatives will revert to using the 3:00 PM to 3:30 PM VWAP of underlying constituents.
• Revised CAS Window: The cash-market Closing Auction Session is shortened to a 10-minute window from 3:30 PM to 3:40 PM with a ±3% price band, while equity derivatives trading extends to 3:45 PM (expiring index contracts still halt at 3:30 PM on expiry days).

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The simultaneous introduction of VWAP-based F&O expiry pricing by SEBI signals a broader regulatory effort to bring Indian derivatives markets closer to international standards. VWAP settlement reduces the scope for price manipulation in the final minutes of trading — a known vulnerability in single-price settlement models. Market participants should expect initial volatility as trading algorithms and hedging strategies are recalibrated for the new settlement methodology. The changes also underscore SEBI's proactive stance on market microstructure, following its 2024 F&O reforms that raised lot sizes and reduced weekly expiries to manage speculative retail participation.

Independent TradeKaizen Analysis & Key Risks

TradeKaizen Analysis: Reverting F&O expiry settlement to the 30-minute VWAP removes the concentrated closing-auction execution risk that had distorted expiry-day spreads for institutional and algorithmic desks. Meanwhile, a formula-driven settlement calculator with a ₹10 lakh fast-track ceiling should shorten compliance timelines and legal uncertainty for market intermediaries.

Key risks include transitional liquidity friction around the shortened 3:30–3:40 PM CAS window and operational order-routing adjustments required by brokers and institutional desks ahead of February 2027.

Disclaimer: This report is for informational purposes only and does not constitute investment advice.