In a recently released circular, the Securities and Exchange Board of India (SEBI) said that the closing auction session (CAS) in the equity cash segment and certain modifications in the pre-open auction session would be introduced in the domestic equity markets.
SEBI said that it has decided to change the way closing prices of shares are calculated in the equity cash market. Exchanges will shift from the current system, which is based on the volume-weighted average price of trades executed in the final 30 minutes, to a Closing Auction Session (CAS).
At present, closing prices are calculated using trades between 3:00 pm and 3:30 pm, a method that the regulator noted can sometimes lead to price distortions, particularly when large orders are placed close to market close. Most global markets, by contrast, rely on auction-based mechanisms to set closing prices.
The capital market regulator said that this method can sometimes distort prices, especially for large orders placed near market close. Globally, most major markets already use an auction-based system to decide closing prices.
Under the revised framework, the CAS will operate for 20 minutes from 3:15 pm to 3:35 pm on all trading days. The session will include distinct phases for reference price discovery, order entry, and order matching, with random order closure in the final two minutes to curb potential manipulation.
In the first phase, the Closing Auction Session (CAS) will be introduced only for stocks with active derivatives contracts, while other shares will continue to follow the existing VWAP-based closing price mechanism. The auction’s reference price will be derived from the VWAP of trades executed between 3:00 pm and 3:15 pm; if no trades occur during this period, the stock’s last traded price will serve as the reference.
During the CAS, investors may place market and limit orders, though stop-loss and iceberg orders will not be allowed. The final closing price will be determined using an equilibrium price mechanism that identifies the price at which the highest trading volume can be matched. In cases where multiple prices meet this criterion, clearly defined rules will be applied to arrive at the final closing price.
SEBI said the shift will enhance the transparency and robustness of closing prices, which are critical for derivatives settlement, index computation, and mutual fund NAV calculations. The regulator also highlighted that an auction-based close should enable passive funds and large institutional investors to execute trades at fairer prices with lower impact costs.
Concurrently, SEBI has also decided to align the pre-open auction framework with the new system. The pre-open session will continue to run from 9:00 am to 9:15 am, with structured phases for order entry and matching, and a random closure in the final two minutes.
The CAS will be rolled out from August 3, 2026, while the revised pre-open framework will take effect from September 7, 2026. Exchanges and clearing corporations have been directed to upgrade systems, enhance surveillance, and issue detailed operational guidelines ahead of implementation.
SEBI added these changes are aimed at improving price discovery, protecting investors, and bringing Indian markets closer to global best practices.