India’s capital-market regulator is taking another look at how derivative contracts are settled on expiry days, with SEBI Chairman Tuhin Kanta Pandey saying the framework needs to evolve alongside changes in market design.

Speaking at the Commodity and Capital Market Participants Association of India’s 12th International Convention in New Delhi on October 3, Pandey said India needs markets capable of mobilising capital, managing risk and maintaining investor confidence. He said SEBI is examining concerns around the settlement price framework for derivatives following the introduction of the Closing Auction Session (CAS). Moneycontrol

SEBI itself listed a September 12 consultation paper on reviewing aspects of CAS, market timings and settlement methodologies for derivative contracts. On September 3, the regulator also announced that it would review settlement-price methodology for derivatives in light of the CAS rollout. Securities and Exchange Board of India

Why derivative expiry settlement is under review

Derivative expiry days can see unusually high trading activity as positions are closed, rolled over or settled. The method used to determine the final settlement price therefore matters to traders, investors and institutions.

Pandey said SEBI is examining concerns related to the settlement-price framework after introducing CAS.

The Closing Auction Session is designed to improve price discovery near the end of the trading day. Instead of relying solely on a volume-weighted average price mechanism, a call-auction process brings together buy and sell orders to arrive at an equilibrium price.

The broader question for SEBI is how this change should interact with derivative settlement methodologies.

SEBI wants deeper cash and derivatives markets

Pandey's remarks went beyond expiry-day settlement.

He said SEBI wants deeper and more liquid cash markets, broader participation and stronger securities borrowing and lending activity. He also highlighted the role of hedging and arbitrage in connecting cash and derivatives markets.

The regulator's objective, as described by Pandey, is to make these markets work together more effectively for price discovery and risk management.

This is part of a wider regulatory push. SEBI's recent agenda includes reviews of securities lending and borrowing, commodity-derivative position limits and other market-structure measures. Securities and Exchange Board of India

Commodity derivatives face their own set of changes

Commodity markets were a major part of Pandey's address.

He said SEBI is examining position limits for non-agricultural contracts with the aim of improving liquidity and market depth without weakening risk controls.

The regulator is also considering how physical settlement should be introduced in agricultural commodity contracts.

Pandey said an immediate physical-settlement requirement can sometimes make it harder for a new contract to develop sufficient scale. A phased approach, he suggested, could allow contracts to mature before physical delivery becomes mandatory.

SEBI has already published a consultation paper on the phased introduction of physical settlement in selected agricultural commodity derivatives contracts. Securities and Exchange Board of India

GST remains a structural concern

Pandey also pointed to GST-related issues affecting participants that give or receive commodities through exchange platforms.

His message was straightforward: market development is not only about trading rules. Tax treatment, settlement arrangements and operational requirements can also determine whether participants find an exchange-based market practical to use.

SEBI says it will continue engaging on these issues.

Foreign investors get a wider role in commodity derivatives

Another part of the regulator's strategy is expanding institutional participation.

SEBI's August 2026 consultation paper addressed participation by foreign portfolio investors in exchange-traded commodity derivatives. The regulator's stated approach involves widening access while maintaining safeguards related to delivery and the exit from positions. Securities and Exchange Board of India

The move comes alongside a broader effort to make Indian markets easier for international investors to access while retaining risk controls.

SEBI's recent regulatory record also shows continuing work on FPI-related compliance and access issues. Securities and Exchange Board of India

Electricity futures and new risk-management tools

Pandey also highlighted the expansion of instruments available for managing price risk.

Electricity futures, he said, can provide generators, distribution companies and industrial consumers with a regulated mechanism for managing power-price exposure.

That reflects a broader shift in the commodity-derivatives market. The focus is no longer limited to traditional agricultural and industrial commodities. Regulators and exchanges are also looking at contracts that can address newer forms of commercial risk.

SEBI is also simplifying access to capital markets

Pandey's remarks covered the primary and debt markets as well.

SEBI has worked on simplifying IPO disclosures for retail investors through a more concise and standardised prospectus at the draft red herring prospectus stage. Similar approaches are being extended to areas including corporate bonds, REITs and InvITs, according to his address.

The regulator has also been working on widening the investor base and developing the corporate-bond distribution ecosystem.

The underlying policy challenge is balancing easier access with sufficient disclosure and investor protection.

What the latest review could mean

The review of derivative settlement methodology does not, by itself, indicate that SEBI has decided on a particular new settlement formula. The regulator is examining the framework following the CAS rollout, and its September consultation process provides the clearest indication that the issue remains under consideration. Securities and Exchange Board of India

For market participants, several areas will be worth watching:

• Expiry-day settlement: Whether SEBI changes the methodology used to determine derivative settlement prices.
• Closing Auction Session: How CAS interacts with derivative pricing and expiry-day trading.
• Commodity derivatives: Possible changes to position limits and physical-settlement requirements.
• FPI participation: How overseas institutional participation develops under the new safeguards.
• Market liquidity: Whether regulatory changes encourage deeper cash and derivatives markets.
• Operational costs: Whether GST and other structural issues are addressed to reduce friction for participants.

Key Takeaways

• SEBI Chairman Tuhin Kanta Pandey said the regulator is reviewing derivative settlement-price concerns following the CAS rollout. Moneycontrol
• SEBI published a September consultation paper covering CAS, market timings and derivative settlement methodologies. Securities and Exchange Board of India
• The regulator is reviewing position limits in commodity derivatives while seeking greater liquidity without compromising risk controls. Securities and Exchange Board of India
• SEBI is considering phased physical settlement for selected agricultural commodity contracts. Securities and Exchange Board of India
• Foreign portfolio investors have been brought into discussions around wider participation in exchange-traded commodity derivatives. Securities and Exchange Board of India
• Pandey also highlighted electricity futures, securities lending, corporate bonds and broader capital-market participation.

The Next Test for India's Market Architecture

The settlement-price review is one piece of a much larger market-structure exercise underway at SEBI. The regulator is trying to deepen trading activity while keeping safeguards around risk, delivery and investor protection intact.

For traders, institutions and exchanges, the eventual changes to derivative settlement methodology could affect how expiry-day prices are formed and how positions are managed. For ordinary investors, the more important issue is less about the mechanics of a single expiry and more about whether those market mechanisms produce transparent and reliable prices.

SEBI's consultation and subsequent regulatory decisions will determine what changes, if any, ultimately take effect. Readers following India's derivatives and commodity markets will have to watch those next steps closely.

Disclaimer & Source Note: This article is based on SEBI's official releases and public statements, along with standard press reporting available as of October 3, 2026. Regulatory proposals and reviews described above should not be treated as final rules unless formally notified by SEBI.