Sebi to introduce new framework in equity cash segment to determine closing stock prices

New Delhi, Jan 16 (PTI) Markets regulator Sebi on Friday decided to introduce a closing auction session (CAS) in the equity cash segment, a new framework that will make the discovery of closing prices more transparent and robust.

The CAS will be implemented in a phased manner, Sebi said in its circular.

Currently, closing prices are determined using the volume-weighted average price (VWAP) of trades executed during the last 30 minutes of continuous trading.

Under the new framework, Sebi will move closer to global practices where closing prices are discovered through an auction mechanism that aggregates market interest into a single pool of liquidity, improves execution efficiency for large orders, supports fair settlement of derivatives and indices, and facilitates passive funds to transact at closing prices with lower tracking error.

The CAS will be implemented in phases. Initially, it will apply only to cash market stocks that have derivative contracts. For other stocks, the existing VWAP-based method will continue to apply.

According to Sebi, the CAS will run for 20 minutes, from 3:15 pm to 3:35 pm, on all trading days and will operate as a separate session after the continuous trading session.

It will include phases for transition from continuous trading, order entry for both market and limit orders, a limit-only order period with random closure in the last two minutes, and final order matching.

The equity derivatives segment will continue trading till 3:40 pm, while the post-close session in the cash market will run from 3:50 pm to 4:00 pm, during which trades will be executed at the closing price.

The reference price for CAS will be based on the VWAP of trades between 3:00 pm and 3:15 pm. If there are no trades during this period, the last traded price of the day will be used; if there are none, the previous trading day's closing price will apply.

A price band of plus or minus 3 per cent of the reference price will apply during CAS, Sebi said.

The price bands for stock futures between 3:15 pm and 3:40 pm will be aligned with the CAS price band, and the existing dynamic price band flexing mechanism for this period will be suspended.

Only market and limit orders will be allowed during CAS, while iceberg and stop-loss orders will not be permitted.

Sebi said that all eligible orders will be used to determine the equilibrium price, which is the price at which the maximum executable volume is reached.

If multiple prices qualify, the price with the least unmatched quantity will be chosen; if ambiguity persists, the price closest to the reference price will be selected. If no equilibrium price emerges, the reference price itself will be taken as the closing price.

Market orders will get execution priority over limit orders. Unexecuted limit orders from the continuous trading session will be carried forward into CAS, except for stop-loss orders, iceberg orders, and orders outside the applicable price band. These carried-forward orders will retain higher time priority unless modified during CAS.

Risk management and margin requirements applicable to the cash market will continue during CAS, with certain relaxations for unmodified carried-forward limit orders.

Since the closing price methodology is changing, Sebi has also amended the framework for settlement prices of stock and index derivatives, which will now be based on the closing prices discovered through CAS.

Sebi has asked stock exchanges and clearing corporations to jointly formulate standard operating procedures for settlement prices and price-band alignment within 30 days.

In addition, Sebi has aligned the pre-open auction session with the CAS framework. The pre-open session will remain 15 minutes long, include market and limit orders, follow a similar equilibrium price mechanism with random closure, and provide greater transparency through the dissemination of indicative prices and order imbalances.

The CAS framework will be implemented from August 3, 2026, while the revised pre-open auction framework will come into effect from September 7, 2026, Sebi said. PTI SP DRR DRR DRR