Market regulator restores the last 30-minute VWAP method from December 7 after concerns over sharp price swings; analysts expect traders to return, but a sustained recovery remains uncertain
India’s derivatives market could see a gradual recovery in trading activity after the Securities and Exchange Board of India (SEBI) decided to restore the volume-weighted average price (VWAP) method for settling derivatives contracts on expiry days. The revised framework, scheduled to take effect from December 7, 2026, follows concerns among traders over sharp price movements after the introduction of a closing auction session (CAS).
Market participants and analysts believe the change could improve predictability around expiry-day settlements and encourage some options traders who reduced their activity to return. However, the extent of any recovery will depend on how the revised mechanism works in practice, overall market conditions and the impact of other regulatory measures on trading costs.
The development comes at a time when derivatives turnover has faced pressure from multiple factors, including changes to market procedures, tighter rules affecting proprietary traders and higher transaction taxes.
SEBI Restores the VWAP-Based Settlement Method
Under the revised arrangement, derivatives contracts expiring on a trading day will once again use the volume-weighted average price of trades executed during the final 30 minutes of regular trading to determine settlement prices, according to the reported SEBI decision.
VWAP calculates an average price by giving greater weight to transactions involving larger trading volumes. The method is widely used as a market benchmark because it reflects both the prices at which trades occur and the quantity traded at each price.
The change follows the implementation of the closing auction session on August 3. The new process was followed by sharp movements in stock and index levels around the close, prompting concerns among derivatives traders about settlement uncertainty and the risk of unexpected price swings.
By returning to a last-30-minute VWAP-based calculation for expiry-day settlement, the regulator aims to address these concerns while retaining the broader trading framework. Whether this results in a meaningful reduction in volatility will become clearer after the revised rules come into effect.
Derivatives Turnover Declines After Closing Auction Changes
Trading activity weakened following the introduction of the closing auction session. Total derivatives turnover on the National Stock Exchange of India fell 19.2% month-on-month to ₹34.48 trillion in August, equivalent to approximately $363.37 billion, according to the figures cited in the report.
The decline should not be attributed entirely to the closing auction changes. Market activity was also affected by other regulatory measures, including tighter rules on lending to proprietary traders and higher transaction taxes. These factors can influence the cost of participating in derivatives markets, particularly for strategies that involve frequent trading or high turnover.
Lower turnover matters for the broader market ecosystem. Exchanges generate revenue from trading activity, while brokerage firms depend partly on transaction volumes and client participation. A sustained reduction in derivatives activity can therefore affect business performance across the trading ecosystem, although the impact differs by company and revenue model.
For traders, the implications are more direct: changes in settlement calculations, margin requirements, transaction costs and expiry-day procedures can influence the attractiveness of particular strategies.
Analysts Expect Some Options Traders to Return
Brokerages believe the revised settlement mechanism could help restore confidence among traders who reduced their participation after the closing auction session was introduced.
Jefferies said the changes should reduce expiry-day volatility under the closing auction framework and could benefit brokers whose order activity remained below pre-CAS levels. Raj Deepak Singh, vice president of derivatives and quantitative research at ICICI Direct, also indicated that options traders who had stepped away from the system may begin returning.
These expectations point to the possibility of a gradual recovery rather than an immediate rebound. Traders will need to understand the revised settlement process, reassess their strategies and evaluate whether the new mechanism reduces uncertainty enough to justify higher activity.
Volumes may also remain sensitive to market direction, volatility, liquidity and trading costs. The regulatory change could remove one source of concern, but it does not eliminate the financial risks associated with derivatives trading.
SEBI’s Derivatives Settlement Rule Change May Boost Trading Activity
SEBI’s decision to restore the last 30-minute volume-weighted average price (VWAP) method for expiry-day derivatives settlement from December 7, 2026, is expected to reduce uncertainty around closing prices and encourage options traders to return after NSE derivatives turnover fell 19.2% month-on-month to ₹34.48 trillion in August. Analysts see potential for volumes to recover, although the scale of the rebound will depend on market conditions, trading costs and how effectively the revised settlement process addresses expiry-day volatility.