SEBI Introduces Closing Auction Session to Enhance Equity Market Price Discovery

On Friday, January 16, 2026, the capital market regulator, SEBI, announced the introduction of a Closing Auction Session (CAS) in the equity cash segment, a significant reform aimed at enhancing transparency and strengthening the robustness of closing price discovery. The Closing Auction Session framework will come into force from August 3, 2026, while the revised pre-open auction framework will be implemented from September 7, 2026.

Shift from VWAP to Auction-Based Price Discovery

In a circular, SEBI said the new mechanism will be rolled out in a phased manner. At present, closing prices are calculated using the volume-weighted average price (VWAP) of trades executed during the final 30 minutes of continuous trading.

With the proposed framework, SEBI seeks to align India’s markets more closely with global practices, where closing prices are discovered through an auction process. This approach consolidates buy and sell interest into a single liquidity pool, improves execution efficiency—especially for large orders—ensures fair settlement of derivatives and indices, and enables passive funds to transact at closing prices with reduced tracking error.

During the initial phase, CAS will be applicable only to cash market stocks that have derivative contracts. For all other stocks, the existing VWAP-based methodology will continue.

CAS Timings and Session Structure

As per SEBI, the Closing Auction Session will run for 20 minutes, from 3:15 pm to 3:35 pm, on all trading days. It will function as a distinct session following the end of continuous trading. The session will comprise multiple stages, including a transition phase from continuous trading, an order entry period allowing both market and limit orders, a limit-only order window with random closure during the final two minutes, and a final order matching phase.

While the equity derivatives segment will continue trading until 3:40 pm, the post-close session in the cash market will take place 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 derived from the VWAP of trades between 3:00 pm and 3:15 pm. In the absence of trades during this window, the day’s last traded price will be used; if that is also unavailable, the previous trading day’s closing price will serve as the reference. A price band of plus or minus 3 per cent around the reference price will apply during the auction.

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 during this period will be suspended.

Order Types Allowed During CAS

As per SEBI, only market and limit orders will be permitted in CAS. Iceberg orders and stop-loss orders will not be allowed. All eligible orders will be considered to determine the equilibrium price, the price at which the maximum tradable volume is achieved.

If more than one price meets this criterion, the price with the lowest unmatched quantity will be selected. If ambiguity still remains, the price closest to the reference price will be chosen. In the absence of a viable equilibrium price, the reference price itself will be designated as the closing price.

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Treatment of Unexecuted Orders

Market orders will take precedence over limit orders. Unexecuted limit orders from the continuous trading session, excluding stop-loss orders, iceberg orders, and those outside the applicable price band, will be carried forward into CAS. These orders will retain their original time priority unless modified during the auction session.

Risk management and margin norms applicable to the cash market will continue to apply during CAS, although certain relaxations will be extended to unmodified carried-forward limit orders.

Given the change in the closing price discovery process, SEBI has also revised the settlement price framework for stock and index derivatives, which will now be based on the closing prices determined through CAS. SEBI has directed stock exchanges and clearing corporations to jointly develop standard operating procedures for settlement pricing and price-band alignment within 30 days.

Additionally, the regulator has aligned the pre-open auction session with the CAS framework. The pre-open session will continue to be 15 minutes long, allow market and limit orders, follow a similar equilibrium price discovery process with random closure, and enhance transparency through the dissemination of indicative prices and order imbalance data.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

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