Capital markets regulator Sebi has overhauled the operating framework for the Closing Auction Session (CAS), introducing revised trading windows and altering how final settlement prices are determined for expiring index and single-stock derivatives contracts. The comprehensive policy revision aims to enhance transaction transparency, reinforce fair price discovery, and ensure an orderly conclusion to trading sessions across exchanges. The framework replaces the initial mechanism introduced in the equity cash segment on August 3, where the closing price generated in the CAS was directly utilized for derivatives expiry settlements, an arrangement that prompted market feedback and regulatory scrutiny.
Revised Closing Auction Timings and Order Sequence
Under the revised schedule, the 10-minute CAS will operate between 3:30 pm and 3:40 pm across all official trading days. Continuous trading in stock and index derivatives will extend up to 3:45 pm, with specific exceptions established for expiring index contracts. The sequence commences at 3:30 pm with the reference price computation alongside the systematic transfer of eligible pending orders from the regular continuous session.
Participants will be permitted to enter both market and limit orders between 3:31 pm and 3:36 pm. After 3:36 pm, order entry will strictly be restricted to limit orders. The closing auction will conclude dynamically at an undisclosed random moment between 3:38 pm and 3:40 pm. Within the equity cash segment, the post-close window will take place from 3:50 pm to 4:00 pm, where all transactions will be executed strictly at the determined closing prices of the respective securities.
Reference Price Methodology and Permissible Order Types
The calculation of the benchmark reference price for the CAS will rely on the Volume Weighted Average Price (VWAP) logged during the final 15 minutes of the continuous trading session. In instances where no trades occur during that 15-minute window, the regulator has stipulated that the security's last traded price (LTP) of the day will function as the reference point.
If a security records zero trading volume throughout the entire continuous trading day, the reference price will default to the previous trading day's official closing price, adjusted for applicable corporate actions. The regulatory circular also outlines the designated order varieties eligible for placement during the auction process.
Overhaul of Expiry Settlement Calculation for Derivatives
A critical structural revision involves the determination of final settlement values for expiring derivative contracts. Rather than linking settlement to the CAS auction outcome, Sebi has shifted the settlement benchmark to a VWAP calculation derived from the final 30 minutes of continuous trading.
For index derivatives contracts reaching expiration, settlement will mirror the underlying index value computed from the 30-minute continuous trading VWAP of the index's constituent equities in the cash segment. For single-stock derivatives, expiring contracts will settle against the volume weighted average price of the underlying equity recorded across all stock exchanges during the last 30 minutes of regular continuous market hours.
Real-Time Dissemination Standards and Implementation Roadmap
To ensure adequate market transparency, stock exchanges are tasked with computing and broadcasting indicative underlying index values in real time during the computation period. Simultaneously, indicative VWAP data points for individual underlying equities will be continuously published throughout the designated timeframe.
Late-session volatility guardrails for stock futures have also been tightened. Between 3:30 pm and 3:45 pm, stock futures price bands will be pegged directly to the closing auction parameters, and the standard practice of dynamic price-band flexing will be suspended during this timeframe. Sebi confirmed that the primary regulatory amendments will take effect from December 7. However, functionality concerning the automatic rollover of unexecuted limit orders and iceberg orders from continuous trading into the CAS will be introduced at a later stage, taking effect on February 8, 2027. These final measures incorporate public feedback from a September consultation paper, deliberations by the Secondary Market Advisory Committee, and technical consultations with stock exchanges.
