Description

SEBI introduces Closing Auction Session (CAS) for equity cash segment stocks with derivative contracts, replacing VWAP-based closing price determination with auction-based mechanism from 3:15 PM to 3:35 PM.

Summary

SEBI has introduced Closing Auction Session (CAS) in the equity cash segment to determine closing prices through an auction mechanism instead of the current Volume Weighted Average Price (VWAP) method. Initially applicable to stocks on which derivative contracts are available, CAS will operate from 3:15 PM to 3:35 PM on all trading days. The current VWAP-based closing price calculation (based on last 30 minutes of trading) will continue for remaining securities. This aligns Indian markets with global practices and provides fair, transparent closing prices crucial for derivatives settlement, index computation, and mutual fund NAV determination.

Key Points

  • CAS will be a separate 20-minute session from 3:15 PM to 3:35 PM on all trading days
  • Initially applicable only to stocks with derivative contracts available
  • Remaining securities will continue using VWAP of last 30 minutes of Continuous Trading Session
  • Session structure: 5 minutes reference price calculation, 5 minutes order entry (limit and market), 5 minutes order entry (limit only with random close), 5 minutes order matching
  • Random closure between 3:28 PM to 3:30 PM (system-driven)
  • Equity derivatives segment continues to operate until 3:40 PM
  • Post-close session in cash segment: 3:50 PM to 4:00 PM (trades at closing price)
  • CAS provides single pool of liquidity for fair price discovery
  • Facilitates passive funds to transact at closing price, reducing tracking error
  • Closing price used for derivatives settlement, index computation, mutual fund NAV determination

Regulatory Changes

  • Closing Price Determination: For stocks with derivative contracts, closing price will be determined through CAS auction mechanism instead of VWAP of last 30 minutes
  • Trading Session Structure: Introduction of new 20-minute CAS session from 3:15 PM to 3:35 PM
  • Session Timeline:
    • 3:15 PM - 3:20 PM: Reference price calculation and transition from CTS to CAS (5 minutes)
    • 3:20 PM - 3:25 PM: Order entry period for both limit and market orders (5 minutes)
    • 3:25 PM - 3:30 PM: Order entry only for limit orders, no modification/cancellation for market orders, random close in last 2 minutes (5 minutes)
    • 3:30 PM - 3:35 PM: Order matching (5 minutes)
  • Random Closure: Order entry session closes randomly between 3:28 PM to 3:30 PM (system-driven)
  • Derivatives Timing: Equity derivatives segment continues to 3:40 PM (unchanged)
  • Post-Close Session: Operates between 3:50 PM to 4:00 PM where trades execute at closing price
  • Special Trading Sessions: CAS closing price mechanism applies to special trading sessions with same duration
  • Phased Implementation: Initially for derivative stocks only, with potential expansion to other securities later

Compliance Requirements

  • Stock Exchanges: Must implement CAS infrastructure and systems for 3:15 PM - 3:35 PM session
  • Stock Exchanges: Configure random closure mechanism between 3:28 PM - 3:30 PM
  • Stock Exchanges: Adjust post-close session timing to 3:50 PM - 4:00 PM
  • Clearing Corporations: Update settlement systems to use CAS-determined closing prices for derivatives
  • Trading Members: Modify trading systems and strategies to accommodate new CAS session
  • Trading Members: Update order management systems to handle CAS order types and restrictions
  • Market Participants: Adjust trading strategies for stocks with derivatives to participate in CAS
  • Passive Funds: Can utilize CAS for closing price execution to reduce tracking error
  • Mutual Funds: Update NAV calculation systems to use CAS closing prices for applicable stocks
  • Index Providers: Use CAS closing prices for index computation for stocks with derivatives
  • Risk Management Systems: Update to incorporate CAS price discovery mechanism

Important Dates

  • Circular Date: January 16, 2026
  • Implementation Date: Not specified in the provided content (document appears incomplete)
  • Effective Timeline: Phased implementation starting with stocks having derivative contracts

Impact Assessment

Market Structure Impact:

  • Fundamental change in price discovery mechanism for derivative stocks affecting closing price determination
  • Alignment with global best practices in major jurisdictions
  • Enhanced liquidity aggregation through single auction pool

Trading Operations Impact:

  • Extended trading infrastructure requirements until 3:35 PM for cash segment
  • New order types and session rules requiring system modifications
  • Random closure mechanism requiring algorithmic trading strategy adjustments

Derivatives Market Impact:

  • More transparent and fair closing prices for derivatives settlement
  • Reduced potential for closing price manipulation
  • Better alignment between cash and derivatives pricing

Institutional Investor Impact:

  • Passive funds benefit from ability to execute at closing price, reducing tracking error
  • Improved execution efficiency for large orders through aggregated liquidity
  • Equal access for all investor categories in price discovery

Mutual Fund Impact:

  • NAV determination based on more representative closing prices
  • Reduced deviation between NAV calculation and actual market prices

Index Impact:

  • Index computation based on auction-discovered closing prices
  • More accurate index values reflecting true market consensus

Operational Impact:

  • Requires significant system upgrades across trading, clearing, and risk management infrastructure
  • Need for participant education and testing before implementation
  • Coordination required across all market participants for smooth transition

Impact Justification

Major structural change in closing price determination mechanism affecting all stocks with derivatives, impacting derivatives settlement, index computation, mutual fund NAV, and passive fund operations. Requires operational changes from all market participants.