SEBI Promises Swift Action on Derivatives Settlement, Unveils Broad Market Reforms

India's market regulator, SEBI, is set to release crucial new guidelines for the Closing Auction Session (CAS) within the next week, a move aimed at resolving ongoing concerns surrounding derivative settlement price on expiry days. SEBI Chairman Tuhin Kanta Pandey confirmed the imminent update, highlighting the regulator's commitment to ensuring a fairer and more efficient market for all participants. The announcement comes after SEBI received a massive 20,000 public comments on its recent consultation paper, reflecting widespread industry and investor interest in these critical changes. The need for these revised guidelines stems from issues that arose after CAS was introduced in August, particularly the abrupt price swings and uncertainty that impacted derivatives on their expiry days. Pandey emphasized SEBI broader vision to deepen India's cash markets and enhance price discovery, stressing that greater participation, robust securities borrowing and lending, and smarter hedging and arbitrage strategies are key to boosting overall market liquidity and efficiency. Alongside the CAS review, SEBI is also modernizing rules for depositories, exploring a 'graded compliance' system for brokers based on their size and tech use, and working to simplify market access for overseas investors through digital onboarding, with a circular on this expected shortly after receiving over 400 comments. Looking ahead, SEBI plans to integrate transactions like tender offers, buybacks, and offers for sale into the interoperability framework by the end of November 2026, aiming to cut costs and compliance burdens that currently necessitate parallel clearing arrangements. Furthermore, the regulator is gearing up to issue guidelines for the responsible use of Artificial Intelligence and Machine Learning in capital markets, signaling a forward-thinking approach to technological integration. The market watchdog is also expanding investor education, including a new 'MUST' initiative to bring financial literacy directly to universities and colleges, underlining a comprehensive effort to build trust and empower investors.