Sebi approves a separate auction session to determine the closing prices of the shares

Capital market regulator Sebi has decided to change the way the closing prices of shares in the stock market are calculated. Instead of using the average price of trades in the last 30 minutes of trading, exchanges will move to a new system called the Closing Auction Session (CAS).Currently, a stock’s closing price is based on the volume-weighted average price of trades between 3:00 PM and 3:30 PM. Sebi said this method can sometimes distort prices, especially for large orders placed close to the market. Globally, most major markets already use an auction-based system to determine closing prices.

Under the new framework, CAS will run for 20 minutes from 3:15 PM to 3:35 PM on all trading days. The session has separate phases for calculating a reference price, entering orders and matching orders. Orders are closed randomly in the last two minutes to prevent tampering.

Initially, CAS will only apply to shares with derivative contracts. For other shares, the existing VWAP-based method will be maintained for the time being. The reference price for the auction is calculated based on the VWAP of transactions between 3:00 PM and 3:15 PM. If there are no trades in that window, the last traded price of the day will be used.

During CAS, both market and limit orders are allowed, but stop-loss and iceberg orders are not allowed. The closing price is discovered through an equilibrium price mechanism, which selects the price at which the maximum volume can be matched. If multiple prices are eligible, Sebi has set clear rules to determine the final closing price.

Sebi said the change will make closing prices more transparent and reliable. This is important because closing prices are used for the settlement of derivatives, index calculations and net asset value of investment funds. The regulator also noted that CAS will help passive funds and large investors execute trades at fair prices with lower impact costs.

Sebi, along with CAS, has also aligned the pre-open auction session with the new framework. The pre-open session lasts 15 minutes, from 9:00 AM to 9:15 AM, with defined phases for order entry and matching, and random closing in the last two minutes. The new closing auction system will be implemented from August 3, 2026, while changes to the pre-open session will come into effect from September 7, 2026. Stock exchanges and clearing houses have been asked to update systems, strengthen supervision and issue detailed operational guidelines ahead of the rollout.

Sebi said these changes are aimed at improving price discovery, protecting investors and bringing Indian markets closer to global best practices.