SEBI Panel Proposes Revised Closing Auction Timings, Retains VWAP-Based Settlement

The Securities and Exchange Board of India’s (SEBI) Secondary Market Advisory Committee (SMAC) has favoured retaining the existing volume-weighted average price (VWAP) method for settling index and stock derivatives on expiry days.  

According to three sources cited by Moneycontrol, the panel has recommended holding off on a formula that combines continuous trading and closing auction prices. 

VWAP to Cover Trades Between 3 pm and 3:30 pm 

Under Option 2 of SEBI’s September 12 consultation paper, the settlement price would be calculated using the VWAP of trades executed between 3 pm and 3:30 pm during the continuous trading session (CTS). The committee has favoured keeping this method in place for at least a year before considering a change. 

The consultation paper presented two options: a blended formula using the final 30 minutes of continuous trading and the 10-minute closing auction session (CAS) or retaining the CTS-only VWAP as an interim measure. 

The review follows the introduction of CAS for stocks in the futures and options (F&O) segment on August 3, 2026. The auction-based process replaced the earlier closing-price mechanism, raising concerns about price volatility and the effect of auction prices on derivatives settlement. 

Proposed Changes to Market Timings 

The committee has also backed changes to the trading schedule. Normal trading in stocks covered by CAS would continue until 3:30 pm, followed by a one-minute transition period. The closing auction would run from 3:31 pm to 3:40 pm, while derivatives trading would remain open until 3:45 pm. 

This would give derivatives traders five minutes to trade after the closing auction ends and bring the cash and derivatives market schedules closer together. 

IEP Display and Market Orders Under Review 

The panel has favoured continuing the display of the indicative equilibrium price (IEP) during CAS. While the security-level IEP indicates a potential matching price for an individual stock, an indicative index value derived from IEPs does not represent executed trades. 

The treatment of market orders remains unresolved. SEBI is examining concerns that large orders placed and subsequently cancelled during the auction could influence the IEP and create scope for price manipulation. 

Iceberg Orders and Next Steps 

For iceberg orders, the committee has favoured allowing validity until either 3:30 pm or 3:40 pm. Orders remaining valid until 3:40 pm would have their full quantity displayed during CAS. 

SEBI’s forthcoming circular on the closing auction framework is expected to include the committee’s recommendations. 

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Conclusion 

The panel has favoured keeping the current settlement formula and revising trading timings around the closing auction session. The treatment of market orders remains under review ahead of SEBI’s proposed circular. 

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