Sebi Introduces Closing Auction Session for F&O Stocks From August 3

Closing Auction Session (CAS) for futures & options (F&O) stocks will be introduced by stock exchanges from August 3, bringing major changes in the method of closing price determination. This will happen under the new market structure that has been adopted by Securities and Exchange Board of India (Sebi) wherein VWAP-based closing system of eligible securities will be replaced.

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This is being done in order to improve price discovery and ensure the authenticity of closing prices, which are used as the basis for index and mutual fund valuation, as well as derivative instruments. During the initial phase, the mechanism will apply only to stocks that are part of the F&O segment.

How the New Closing Auction Session Will Work

Under the revised framework, a 15-minute Closing Auction Session will be conducted after the normal trading session ends at 3:15 p.m. Instead of fixing the closing price based on trades done within the last 30 minutes of the session, the exchanges will collate bids and offers and match them at an equilibrium price point.

There are going to be four phases of the CAS. Between 3:15 PM to 3:20 PM, the exchanges will establish the benchmark price and shift from the continuous trading system to the auction trading system. Between 3:20 PM to 3:25 PM, traders will have the ability to place both market and limit orders, but no transactions will take place in that time period.

The next five-minute window, beginning at 3:25 p.m., will permit only limit order entries, with system-driven random closure during the final two minutes. Order matching and trade confirmation will take place from 3:30 p.m. to 3:35 p.m.

Derivatives Trading Window Extended

To align with the introduction of CAS, trading in the equity derivatives segment will continue until 3:40 p.m., compared with the earlier closing time of 3:30 p.m.

For securities that are not part of the CAS framework, regular trading hours will remain unchanged until 3:30 p.m. However, the post-closing session for those stocks has been revised and will now be conducted between 3:50 p.m. and 4:00 p.m.

Objective Behind the Change

Sebi has introduced the new auction-based closing mechanism to improve the fairness of closing price discovery and reduce the possibility of price distortion caused by large trades executed in the final minutes of the trading session.

In a social media post, Zerodha Founder Nithin Kamath said passive investment funds tracking benchmark indices often execute sizeable trades near the close, which can influence the final traded price. He noted that pooling all buy and sell orders and determining a single equilibrium price makes it more difficult to influence the closing level of individual stocks or benchmark indices.

Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, said the auction-based process is expected to improve price discovery, reduce the impact of large last-minute trades and make benchmark values more representative of actual market demand and supply.

For retail investors, the operational changes are expected to remain largely in the background. However, the revised mechanism is designed to produce more transparent closing prices, supporting more accurate index calculations, mutual fund NAVs and portfolio valuations while bringing Indian market practices closer to global standards.