The Securities and Exchange Board of India (Sebi) on Thursday announced the much-awaited revisions to the closing auction session (CAS) framework, introducing changes to the settlement methodology, trading timings, and the transition of unexecuted iceberg orders.
An iceberg order is a large order split into smaller orders where only a fraction of the total quantity is visible in the order book displayed to the public.
The revised framework will take effect from December 7, 2026, except for changes relating to the transition of unexecuted limit and iceberg orders from the continuous trading session (CTS) to CAS, which will come into force from February 8, 2027.
Retaining the earlier method, the settlement price of index derivatives will be based on the volume-weighted average prices (VWAP) of constituent securities during the last 30 minutes of the CTS (3.00 pm to 3.30 pm) in the equity cash segment.
For expiring stock derivatives, clearing corporations will determine settlement prices using the VWAP of the underlying stock during the last 30 minutes of the CTS across all stock exchanges.
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Exchanges will provide the VWAP and quantity traded to clearing corporations and continuously disseminate indicative values to market participants in real time during this period.
Under the revised timings, CAS will operate as a separate 10-minute session from 3:30 pm to 3:40 pm on all trading days. The order-entry period will close randomly between 3:38 pm and 3:40 pm.
Trading in index derivatives will continue until 3:45 pm on regular trading days, but contracts expiring that day will stop trading at 3:30 pm. Trading in stock derivatives will continue until 3:45 pm, including on expiry days. The post-close session in the cash segment will run from 3:50 pm to 4 pm, with trades executed at the closing prices of securities.
CAS became effective on August 3 and saw an uproar from the trading community over the settlement price, sharp spikes, and low liquidity.
The latest changes were announced following a consultation paper that received over 20,000 suggestions, which was followed by deliberations of the market regulator’s Secondary Market Advisory Committee on Thursday.
The regulator had also proposed a blended mechanism, on which several market participants had raised concerns, given the low liquidity in the window.
Traders and brokers had favoured the 30-minute VWAP method stating that participants were more familiar with this mechanism and that it was more transparent and operationally well understood.
On Thursday, Sebi also specified how unexecuted orders will move from the CTS to CAS. Pending limit orders will generally be carried forward, except stop-loss orders and orders priced beyond the applicable CAS price bands.
Unexecuted iceberg orders within the applicable price bands will be converted into fully disclosed limit orders (at fixed/pre-determined price), unless market participants opt out when placing the original orders. These converted orders will have lower time priority than other limit orders carried forward from the continuous session, but higher priority than limit orders placed during CAS.
At present, CAS is a 20 minute window from 3:15 pm to 3:35 pm where the reference price calculation and transition from CTS to CAS happens from 3:15 pm to 3:20 pm. In this period, no order entry is allowed. The next five minutes order entry period remains. From 3.25 pm to 3.30 pm, the order entry period is restricted to limit orders only, and no modifications or cancellations of market orders are allowed. In this period, trading closes randomly in the last two minutes.
In its consultation paper, Sebi had also proposed prohibiting cancellation of limit orders placed beyond 1 per cent range of the reference price during CAS. However, the regulator skipped this change in the final circular.