SEBI Proposes Changes To Closing Auction Session

The Securities and Exchange Board of India (SEBI) has proposed a series of changes to the closing auction session (CAS), including revised methods for settling derivatives contracts on expiry days, shorter transition periods and modifications to trading schedules.

The proposed framework offers two alternatives for calculating expiry settlement prices for index and stock derivatives. The first option involves using a blended volume-weighted average price (VWAP), combining the final 30 minutes of regular trading with the 10-minute closing auction session.

The second option suggests using only the VWAP from the last 30 minutes of continuous trading as an interim arrangement. SEBI has proposed removing the indicative index value (IIV) generated from indicative equilibrium prices during the closing auction.

According to the regulator, the IIV could be misunderstood as the actual index level and may influence investor decisions despite not being based on completed trades. However, security-level indicative equilibrium prices will continue to be available.

The regulator has proposed two possible market timing structures. Under one option, trading in CAS stocks would continue until 3:30 pm, followed by the auction from 3:31 pm to 3:40 pm and derivatives trading until 3:45 pm.

The second option would maintain the existing 3:15 pm cut-off for CAS stocks, with the auction concluding by 3:25 pm and derivatives trading ending at 3:30 pm. SEBI has also suggested reducing the gap between continuous trading and CAS from five minutes to nearly one minute.

The post-auction derivatives trading period could also be reduced from 10 minutes to five minutes. The regulator has proposed keeping the existing 3% price band during CAS.

Orders placed beyond 1% from the reference price would not be allowed to be cancelled during the auction but could be modified to improve pricing. Additionally, pending iceberg-order quantities at the end of regular trading may be converted into normal limit orders, with the full quantity displayed in the auction order book.

SEBI introduced CAS for derivatives segment stocks from August 3, 2026, and has invited public feedback on the proposed changes until October 3, 2026. The proposed changes aim to improve the efficiency and transparency of the closing auction session.

The changes are expected to have a significant impact on the trading landscape in India, and market participants are eagerly awaiting the final outcome. The regulator's decision to seek public feedback is a positive step towards ensuring that the changes are in the best interest of all stakeholders.

In conclusion, the proposed changes to the closing auction session by SEBI are a significant development in the Indian securities market. The changes aim to improve the efficiency and transparency of the closing auction session, and market participants are eagerly awaiting the final outcome.