The Securities and Exchange Board of India (Sebi) has announced a major overhaul of how closing prices are determined in the equity cash market, moving from the current volume-weighted average price method to a new auction-based system. This change aims to enhance price discovery and bring Indian markets in line with global standards.

Current System vs New Framework

The existing method calculates closing prices based on the volume-weighted average price of trades executed between 3:00 pm and 3:30 pm. However, Sebi has identified limitations with this approach, noting that it can sometimes distort prices, especially when large orders are placed near market close. Most major global markets already employ auction-based systems for determining closing prices.

Closing Auction Session Structure

The new Closing Auction Session (CAS) will operate for 20 minutes from 3:15 pm to 3:35 pm on all trading days. The session will feature distinct phases for calculating a reference price, order entry, and order matching. To prevent manipulation, orders will close randomly during the final two minutes of the session.

The reference price for the auction will be calculated using the VWAP of trades between 3:00 pm and 3:15 pm. In cases where no trades occur during this window, the last traded price of the day will serve as the reference point.

Order Types and Price Discovery

During the CAS, both market and limit orders will be permitted, while stop-loss and iceberg orders will be restricted. The closing price will be determined through an equilibrium price mechanism that selects the price at which maximum volume can be matched. Sebi has established clear rules for selecting the final closing price when multiple prices qualify under this criterion.

Implementation Timeline and Scope

Initially, the CAS will apply exclusively to stocks that have derivatives contracts, while other shares will continue using the existing VWAP-based method. The implementation is scheduled for August 3, 2026.

Sebi has also aligned the pre-open auction session with the new framework. The pre-open session will maintain its 15-minute duration from 9:00 am to 9:15 am, incorporating defined phases for order entry and matching, along with random closing in the last two minutes.

Market Impact and Benefits

Sebi emphasized that this change will make closing prices more transparent and reliable, which is crucial since closing prices are used for derivative settlement, index calculation, and mutual fund net asset values. The regulator noted that CAS will particularly benefit passive funds and large investors by enabling them to execute trades at fair prices with lower impact costs.

Stock exchanges and clearing corporations have been directed to update their systems, strengthen surveillance mechanisms, and issue detailed operating guidelines ahead of the rollout. Sebi stated that these changes are designed to improve price discovery, protect investors, and bring Indian markets closer to global best practices.

The Securities and Exchange Board of India (SEBI) has announced a regulatory modification concerning stock futures trading parameters, specifically addressing price band alignment during extended trading hours.

New Price Band Alignment Framework

The market regulator has established that stock futures price bands will match the Call Auction Session (CAS) price bands during a designated time period. This alignment will be effective from 3:15 PM to 3:40 PM, creating uniformity between the two trading mechanisms during this specific window.

Regulatory Impact

This regulatory change represents a harmonization effort between different trading segments, ensuring consistent price band parameters across stock futures and Call Auction Session mechanisms during the specified timeframe. The alignment affects the price discovery mechanism and trading parameters for market participants operating in both segments during the designated period.

The modification demonstrates SEBI's ongoing efforts to streamline trading mechanisms and create consistency across different market segments, particularly during extended trading hours when both systems operate simultaneously.