The Securities and Exchange Board of India (SEBI) has introduced a new Closing Auction Session (CAS) for stocks with active futures and options (F&O) contracts from August 3, 2026. While regular market hours continue to begin at 9:15 AM, the closing process for F&O stocks has changed.
Earlier, the official closing price for all equity stocks was calculated using the volume-weighted average price (VWAP) of trades during the last 30 minutes of the trading session. Under the new framework, eligible F&O stocks stop regular trading at 3:15 PM and move into a Closing Auction Session, where the closing price is discovered through order matching. Stocks without F&O contracts continue trading until 3:30 PM, while equity derivatives trade until 3:40 PM.
The change is expected to influence how index funds, exchange-traded funds (ETFs) and arbitrage funds are valued and managed.
The new auction-based mechanism aims to make closing prices more transparent and aligned with actual market demand and supply.
According to Manish Srivastava, Executive Director at Anand Rathi Wealth, the auction-based approach, which is already followed by several global exchanges, is designed to improve price discovery and reduce distortions that may arise under the earlier averaging method.
Vaibhav Porwal, Co-founder of Dezerv, explained that the auction runs between 3:15 PM and 3:30 PM, with the final closing price determined shortly after the session ends. Initially, the mechanism applies only to Category I stocks with active F&O contracts.
As reported by Livemint, Aditya Agarwal, Co-Founder of Wealthy.in, said that around 200 F&O stocks, including all Nifty 50 and Sensex constituents, now follow the auction-based closing process instead of the earlier VWAP-based methodology.
Index funds calculate their daily Net Asset Value (NAV) using the closing prices of the stocks they hold. As a result, any change in the closing price calculation directly affects the fund's NAV.
According to Manish Srivastava, auction-based closing prices are expected to better reflect actual market demand and supply compared with the earlier averaging method.
As reported by Livemint, Aditya Agarwal noted that funds tracking Nifty 50, Sensex and Nifty Bank will be fully affected because all their constituent stocks are covered under the new mechanism. In contrast, funds tracking broader indices such as the Nifty 500, mid-cap and small-cap indices will experience only a partial impact as many of their constituents are outside the F&O segment.
Srivastava added that funds such as UTI Nifty 50 Index Fund, HDFC Index Fund Nifty 50 Plan, ICICI Prudential Nifty 50 Index Fund, SBI Nifty Index Fund and Nippon India Index Fund Nifty 50 Plan could see the direct impact since they replicate the Nifty 50 Index.
The new closing auction may also improve how ETFs track their benchmark indices.
According to Aditya Agarwal, ETFs that execute trades at market close could benefit from receiving the auction-discovered closing price, potentially reducing tracking error, which is the difference between a fund's return and that of its benchmark.
As reported by Livemint, Vaibhav Porwal said that more representative closing prices could help index funds and ETFs mirror their benchmarks more accurately over time. However, Agarwal cautioned that the benefit will depend on participation in the auction, with the actual impact becoming clearer after tracking error data is available over the coming quarters.
Arbitrage funds earn returns by taking advantage of the price difference between stocks in the cash market and their corresponding futures contracts.
According to Manish Srivastava, the auction-based closing price could reduce short-term pricing anomalies near market close, making arbitrage spreads more predictable even if some temporary opportunities reduce.
Aditya Agarwal said that the long-term performance of arbitrage funds is driven mainly by the cash-futures spread and prevailing interest rates rather than a single day's closing price. Vaibhav Porwal added that while there could be short-term adjustments, arbitrage opportunities are expected to normalise over time.
According to Manish Srivastava, the new mechanism is expected to improve valuation accuracy and reduce the possibility of price manipulation near the market close, benefiting mutual fund investors over the long term.
As reported by Livemint, Aditya Agarwal noted that the change does not affect SIP dates, cut-off timings or redemption processes. Instead, investors should monitor the tracking error of index funds and ETFs over the coming quarters to assess the impact of the new mechanism.
The introduction of the Closing Auction Session changes the way closing prices are determined for F&O stocks. While investors are unlikely to see any change in SIPs or redemption rules, the new system is expected to improve price discovery, valuation accuracy and benchmark tracking for index funds and ETFs. Arbitrage funds may witness short-term adjustments, but industry experts expect the long-term impact to remain limited.
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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.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: Aug 5, 2026, 10:16 AM IST
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