India’s market regulator Sebi has approved a major change in how closing stock prices are discovered, moving away from the existing volume-weighted average price method to an auction-based system aimed at improving transparency, fairness and execution quality at the market close.The new framework, called the Closing Auction Session (CAS), will be rolled out in phases from August 2026 and will initially apply to cash market stocks that have derivative contracts, Sebi said in a circular issued on Friday. The existing method will continue for other stocks, PTI reported.Sebi said the shift aligns Indian markets with global practices and is designed to support better settlement of derivatives and indices, improve execution for large orders and reduce tracking errors for passive funds.
What changes at market close
At present, closing prices are calculated using the volume-weighted average price (VWAP) of trades executed during the last 30 minutes of continuous trading. Under the new system, closing prices will be discovered through a dedicated auction session that pools buy and sell interest into a single liquidity window.The CAS will run for 20 minutes from 3:15 pm to 3:35 pm, immediately after the regular trading session. It will include a transition phase from continuous trading, an order entry period for market and limit orders, followed by a limit-only phase with random closure in the final two minutes, before final order matching.The reference price for the auction will be the VWAP of trades between 3:00 pm and 3:15 pm. If no trades occur during that window, the last traded price will be used, and if that too is unavailable, the previous day’s closing price will apply. A ±3% price band around the reference price will be enforced during CAS.
Order rules, execution and price discovery
Only market and limit orders will be permitted during the closing auction. Iceberg and stop-loss orders will not be allowed. Unexecuted limit orders from the continuous trading session will be carried forward into CAS, except for stop-loss orders, iceberg orders and orders outside the applicable price band.All eligible orders will be considered to determine the equilibrium price — defined as the price at which the maximum executable volume is achieved. If more than one price qualifies, the price with the least unmatched quantity will be selected; if ambiguity remains, the price closest to the reference price will be chosen. If no equilibrium price is discovered, the reference price itself will become the closing price.Market orders will have execution priority over limit orders. Risk management and margin norms applicable to the cash market will continue during CAS, with certain relaxations for unmodified carried-forward limit orders.
Impact on derivatives and rollout timeline
Since closing prices are used for settlement, Sebi has amended the settlement framework for stock and index derivatives, which will now be based on prices discovered through the closing auction. The equity derivatives segment will continue trading until 3:40 pm, while the post-close session in the cash market will run from 3:50 pm to 4:00 pm, during which trades will be executed at the closing price.Sebi has directed stock exchanges and clearing corporations to jointly finalise standard operating procedures for settlement prices and price-band alignment within 30 days.The regulator has also aligned the pre-open auction session with the CAS framework. The pre-open session will continue to be 15 minutes long, allow market and limit orders, follow a similar equilibrium price discovery mechanism with random closure, and provide greater transparency through dissemination of indicative prices and order imbalances.The Closing Auction Session will come into force from August 3, 2026, while the revised pre-open auction framework will be implemented from September 7, 2026, Sebi said.
