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One of the major challenges of integrating distribution level producers/consumers (prosumers) into the transactive energy market is that the prosumers are not able to precisely predict their energy exchange with the market. This is because small prosumers usually operate intermittent renewable sources and have highly uncertain consumptions. As a consequence, traditional wholesale market mechanisms cannot be implemented in the transactive environment, as they penalise the participants with uncertain energy transactions, and therefore discourage the small prosumers from participating in the market. To this end, novel market design is introduced in this study, which enables distribution system operator to incorporate both the submitted price–quantity bids and the associated risks of prosumers into the settlement process. The proposed market design maximises the social welfare while managing the undesired costs caused by the stochastic nature of participants. The settlement mechanism is formulated as a quadratic problem, which can be efficiently solved for the transactive energy markets with a large number of participants. To demonstrate the merits of the proposed approach, it is implemented on a sample transactive energy market, and the results are discussed. [ABSTRACT FROM AUTHOR]