SEBI Introduces Closing Auction Session (CAS) from August 3: Here's How F&O Stocks, Cash Market and Derivatives Trading Will Change

Mumbai, July 30: The Securities and Exchange Board of India (SEBI) will introduce the Closing Auction Session (CAS) in the equity cash segment from August 3, 2026, replacing the existing VWAP-based closing price methodology for Futures & Options (F&O)-eligible stocks with an auction-based equilibrium price mechanism.  

The regulator will implement the framework in phases, with the first phase covering only cash market stocks on which derivative contracts are available, while the remaining securities will continue to follow the existing Volume Weighted Average Price (VWAP) methodology for determining their official closing price.  

SEBI said the change is aimed at strengthening price discovery, aggregating market interest into a single pool of liquidity, improving the execution of large orders and enhancing transparency, as the closing price serves as a key reference for derivatives settlement, benchmark index computation and mutual fund Net Asset Value (NAV) calculation. 

The regulator said the decision follows public consultations conducted through discussion papers released on December 5, 2024 and August 22, 2025, deliberations by the Secondary Market Advisory Committee (SMAC) and feedback received from recognised stock exchanges, clearing corporations, mutual funds, foreign portfolio investors (FPIs) and other market participants. SEBI said the new framework aims to strengthen transparency, improve price discovery and align India’s closing price mechanism with global market practices. 

F&O Stocks Shift to 3:15 PM Close from August 3 

The introduction of CAS will alter the final phase of trading for F&O-eligible stocks. From 3 August 2026, continuous trading in these stocks will conclude at 3:15 p.m., after which the dedicated Closing Auction Session will run until 3:35 p.m. 

However, the change will not apply to all listed securities. Stocks that are not covered under CAS will continue to trade in the cash market until 3:30 p.m., and their closing price will continue to be determined using the VWAP of trades executed during the last 30 minutes of the Continuous Trading Session (CTS). 

The equity derivatives segment will remain open until 3:40 p.m., while the post-close session in the cash market will continue between 3:50 p.m. and 4:00 p.m., during which trades will be executed at the official closing price. 

20-Minute Auction Replaces VWAP For Eligible Stocks 

Under the revised framework, the Closing Auction Session (CAS) will operate as a separate 20-minute trading session between 3:15 p.m. and 3:35 p.m. on every trading day for eligible securities. During this session, exchanges will first calculate the reference price, collect eligible buy and sell orders, and then determine a single equilibrium price that becomes the stock’s official closing price. 

The auction has been divided into four stages. Between 3:15 p.m. and 3:20 p.m., exchanges will calculate the reference price while transitioning from the Continuous Trading Session to CAS. From 3:20 p.m. to 3:25 p.m., participants may enter, modify or cancel both market orders and limit orders. 

During the next stage, from 3:25 p.m. until a system-driven random close between 3:28 p.m. and 3:30 p.m., only limit orders can be entered or modified, while market orders cannot be modified or cancelled. The random closing mechanism has been introduced to discourage last-minute order placement immediately before order matching. 

Between 3:30 p.m. and 3:35 p.m., exchanges will match all eligible orders and determine the official closing price. 

Reference Price Uses VWAP Between 3:00 PM and 3:15 PM 

The auction process will begin with the calculation of a reference price. For stocks covered under CAS, the reference price will be the Volume Weighted Average Price (VWAP) of all trades executed between 3:00 p.m. and 3:15 p.m. 

Where no trades occur during this period, the Last Traded Price (LTP) recorded during the trading day will be used. If no trades take place throughout the day, the previous trading day’s adjusted closing price, or the applicable base price in the case of a corporate action, will become the reference price for the auction. 

±3% Price Band Applies Throughout the Auction 

Once the reference price is determined, exchanges will impose a price band of ±3% around that value during CAS. Only orders falling within this prescribed range will participate in the auction. 

SEBI has also aligned the price bands applicable to stock futures between 3:15 p.m. and 3:40 p.m. with the price band applicable during CAS. Consequently, the existing framework for dynamic flexing of stock futures price bands will not apply during this period.  

The recognised stock exchanges have been directed to jointly prepare a Standard Operating Procedure (SOP), in consultation with SEBI, within 30 days of the circular to ensure uniform implementation. 

Auction Matches Orders at A Single Equilibrium Price 

Unlike continuous trading, where transactions occur immediately whenever matching buy and sell prices are available, the Closing Auction Session first collects all eligible orders before executing them simultaneously. 

The exchange will determine a single equilibrium price, which will become the official closing price of the stock. This equilibrium price will be the price at which the maximum executable trading volume can be matched. 

Where multiple prices satisfy this condition, the exchange will select the price that results in the lowest unmatched order quantity. If more than one price still qualifies, the price closest to the reference price will be chosen. 

If the reference price lies exactly midway between two qualifying prices, the reference price itself will become the closing price. Similarly, if no equilibrium price is discovered during the auction, the reference price will automatically be treated as the official closing price. 

Market Orders Receive Priority Over Limit Orders 

SEBI has also revised the order execution hierarchy during the auction. Eligible market orders will receive priority over limit orders. Exchanges will first match market orders with other eligible market orders based on time priority at the equilibrium price. 

Residual market orders will then be matched with eligible limit orders according to price-time priority. The remaining limit orders will subsequently be matched with one another following the existing price-time priority framework. 

Only market orders and limit orders will be permitted during CAS. Iceberg orders and stop-loss orders will not be accepted during the auction, and iceberg functionality will remain unavailable as all eligible orders must disclose their complete quantity. 

Existing Orders Move into CAS with Defined Exceptions 

SEBI has allowed eligible unexecuted limit orders from the Continuous Trading Session to be automatically carried forward into the Closing Auction Session. 

However, stop-loss orders, iceberg orders and orders placed outside the applicable CAS price band will not be transferred to the auction. 

The carried-forward limit orders will retain a higher time priority than fresh limit orders entered during CAS. However, if these orders are modified during the auction session, their original time priority will be lost and reassigned based on the time of modification. 

Settlement Rules Change as CAS Becomes Official Closing Price 

The introduction of the Closing Auction Session will also change the methodology used by Clearing Corporations (CCs) to determine settlement prices for stock derivatives and index derivatives. 

SEBI has amended the relevant provisions of the Master Circular for Stock Exchanges and Clearing Corporations to align derivative settlement with the revised closing price framework. Under the new methodology, the settlement price for index derivatives will be based on the closing price of the underlying index, which, in turn, will be derived from the closing prices of its constituent stocks determined under the revised framework. 

Similarly, stock derivative contracts will be settled at a price calculated by the Clearing Corporations using the volume-weighted average of the closing prices of the underlying stock across recognised stock exchanges. To ensure uniform implementation, recognised stock exchanges and Clearing Corporations have been directed to jointly prepare a Standard Operating Procedure (SOP), in consultation with SEBI, within 30 days of the circular. 

Existing Risk Management Framework Continues During CAS 

SEBI has clarified that the existing risk management framework applicable to the equity cash market will continue during the Closing Auction Session. Orders entered during CAS will remain subject to the applicable order-level margin requirements.  

However, eligible limit orders carried forward from the Continuous Trading Session into the auction will not be subjected to fresh margin checks unless they are modified during CAS. If such carried-forward orders are modified, they will then become subject to the applicable order-level margin requirements. 

Exchanges Will Publish Live Auction Data Throughout CAS 

To improve transparency during the auction process, recognised stock exchanges will disseminate several real-time market indicators throughout the Closing Auction Session. 

These include the indicative equilibrium price, indicative cumulative buy quantity, indicative cumulative sell quantity, indicative imbalance quantity at the equilibrium price, indicative imbalance based on market orders, and the indicative index. SEBI has also permitted exchanges to publish additional market information during the session, wherever considered appropriate. 

The dissemination of these indicators is intended to provide participants with continuous visibility into the evolving auction while the closing price is being discovered. 

Pre-Open Auction Rules Aligned with Closing Auction Framework 

Alongside the introduction of CAS, SEBI has also revised the framework governing the pre-open auction session to align it with the new closing auction mechanism. 

The pre-open session will continue to operate between 9:00 a.m. and 9:15 a.m., but its internal structure has been modified. From 9:00 a.m. to 9:05 a.m., both market orders and limit orders can be entered. Between 9:05 a.m. and 9:10 a.m., only limit orders will be accepted, while market orders cannot be modified or cancelled. Similar to CAS, the order entry period will close randomly between 9:08 a.m. and 9:10 a.m. 

Order matching will take place from 9:10 a.m. to 9:12 a.m., followed by the transition of eligible orders to the Continuous Trading Session between 9:12 a.m. and 9:15 a.m. 

The revised pre-open framework also introduces the same order execution hierarchy, giving priority to market orders over limit orders. Iceberg orders and stop-loss orders will not be permitted during the pre-open session. 

Global Auction Model Replaces Existing VWAP Method 

Until now, the official closing price of stocks in the equity cash market has generally been determined using the Volume Weighted Average Price (VWAP) of trades executed during the final 30 minutes of the Continuous Trading Session. 

SEBI said the auction-based framework has already been adopted across several major international markets, where closing auctions are used to determine a single market-wide closing price after aggregating buying and selling interest into one pool of liquidity. 

According to SEBI, the auction-based framework aggregates buying and selling interest into a single pool of liquidity to discover a fair and transparent closing price that reflects the collective market consensus at the end of trading. The regulator said the mechanism is expected to improve the efficiency of executing large orders while strengthening price discovery. 

SEBI added that the framework provides equal and transparent access to all categories of investors by enabling participation in the closing price discovery process. It also allows passive funds, including index funds and exchange-traded funds (ETFs), to transact at the official closing price, thereby helping reduce tracking error. 

Implementation Follows Extensive Industry Consultation 

The regulator said the introduction of CAS follows an extensive consultation process conducted over more than a year. 

The framework incorporates feedback received through consultation papers issued on December 5, 2024, and August 22, 2025, discussions held by the Secondary Market Advisory Committee (SMAC) and comments received from recognised stock exchanges, Clearing Corporations, mutual funds, Foreign Portfolio Investors (FPIs) and other stakeholders. 

SEBI has decided to implement the framework in a phased manner, with the first phase covering only cash market stocks on which derivative contracts are available. The remaining equity securities will continue to follow the existing VWAP-based methodology until the regulator notifies further changes. 

Special Trading Sessions Will Also Follow CAS Framework 

SEBI has clarified that the Closing Auction Session framework will also apply to special trading sessions conducted by recognised stock exchanges. 

For such sessions, the duration of CAS will remain the same as the regular framework. The derivatives segment will close 10 minutes after the end of the CAS order entry period, while the post-close session will commence 10 minutes after the derivatives segment closes, ensuring consistency in closing price determination across regular and special market sessions. 

From August 3, 2026, the Closing Auction Session (CAS) will become the official closing price discovery mechanism for F&O-eligible stocks in the equity cash segment, while non-F&O securities will continue under the existing VWAP-based methodology. The framework also revises end-of-day trading timings, auction procedures, settlement methodology and pre-open auction rules as SEBI begins the phased implementation of the new closing price mechanism. 

The official closing price is one of the market’s most significant reference points, as it is used for settlement of derivative contracts, computation of benchmark indices, calculation of mutual fund Net Asset Values (NAVs) and several other market functions. SEBI said introducing CAS will strengthen the reliability of this reference price by determining it through a transparent auction-based mechanism instead of relying on trades executed during the final minutes of continuous trading. 

Source 

• https://www.sebi.gov.in/legal/circulars/jan-2026/introduction-of-closing-auction-session-cas-in-the-equity-cash-segment-and-certain-modifications-in-the-pre-open-auction-session_99122.html?utm_source=chatgpt.com