The Securities and Exchange Board of India (Sebi) has asked stock exchanges and clearing corporations to implement a Closing Auction Session (CAS), a change that will alter how closing prices are determined in the equity market.
In a consultation paper issued on Friday, the market regulator said that CAS will be implemented in the equity cash markets, bringing India at par with global markets that make use of the framework. The move aims to improve price integrity and reduce volatility near market close.
Mint explains what a closing auction session is and why it matters.
What is a closing auction framework?
A closing auction framework determines a stock’s closing price through an auction rather than continuous trading. During the auction window, all buy and sell orders are collected together, and the system finds a single price at which the maximum number of shares can be traded.
For example, if buyers are willing to buy 1 lakh shares at ₹100 and sellers are willing to sell 1 lakh shares at the same price, ₹100 becomes the equilibrium or closing price. No trades happen during the auction itself. Instead, all eligible trades are executed at once at the final price.
This replaces the current system, which calculates the closing price using the volume-weighted average price (VWAP) of trades over the last 30 minutes of the session. The framework comes with its own risks. During the 30-minute window, prices can be pushed up or down deliberately through a few large trades, a practice known as ‘marking the close’.
Under the new framework, the closing auction session will run for 20 minutes at the end of the trading day. All eligible orders placed during this period will participate in the auction.
How will CAS help market participants?
The biggest benefit of the closing auction is price stability, as all orders are pooled and matched at a single price, reducing sudden price swings just before market close.
For instance, under the old system, a trader could place a large buy order in the final minutes to push the price higher, affecting the closing value. In an auction, such tactics are far less effective because the final price depends on the balance between total demand and supply, not on a single last trade.
The framework also includes a random closing time, so traders do not know the exact second the auction will end. This makes it harder to cancel or place orders at the last moment to influence prices.
Institutional investors such as mutual funds, exchange-traded funds (ETFs) and index funds benefit because they rely heavily on closing prices to calculate portfolio values and index weights. Retail investors also gain from a closing price that better reflects overall market sentiment, rather than last-minute volatility.
What adjustments do stock exchanges and clearing corporations need to make?
Sebi has asked stock exchanges and clearing corporations to amend their bye-laws, trading rules, and regulations, and to put in place detailed standard operating procedures (SOPs) to ensure the smooth execution of the auction. The SOP has to be issued within 30 days of the circular’s issuance, in consultation with Sebi.
“The implementation of CAS will require stock exchanges to upgrade their technology to create an equitable price discovery engine capable of executing complex batch matching algorithms,” said S. Ravi, founder of Ravi Rajan and Co. and former chairman of the BSE. He added that the framework will require system-driven random closure mechanisms, specialized 3% price bands during the auction, and recalibrated trading systems to filter out prohibited order types such as stop-loss and iceberg orders.
Stock exchanges have been directed to put in place systems to strengthen market surveillance during the Closing Auction Session and the period used to determine the reference price. They will monitor trading activity for any market integrity or surveillance concerns and take appropriate action where required. Exchanges and clearing corporations have also been asked to issue detailed guidelines and ensure that systems are in place for the timely and smooth implementation of the framework.
How will CAS be implemented?
CAS will be implemented in phases and will initially consider only the closing prices of stocks in the cash segment for which derivative contracts are available.
The closing price for all other securities in the cash segment will continue to be determined using the VWAP of trades executed during the final 30 minutes of the continuous trading session. In the Closing Auction Session, only limit orders and market orders are permitted, and both are used to calculate the final equilibrium price.
To ensure stability even on low-volume days, Sebi has introduced a fallback mechanism. If the system cannot find an equilibrium price due to insufficient orders, it will first fall back to a shorter VWAP period, then to the last traded price of the day, and finally to the previous day’s closing price. A 3% price band is also applied to prevent sharp price jumps.
Sebi has also aligned the pre-open session with CAS. A pre-open session is a short trading window before the market opens in which buy and sell orders are collected and matched through an auction to determine the opening price of a security. CAS will be implemented in the cash market from 3 August 2026, while the revised Pre-Open Auction Session framework will come into effect from 7 September 2026.
Has India arrived late in adopting a closing auction framework?
Closing auctions are widely used across global markets, including the US, the UK, and European exchanges. In these markets, auctions are considered the most reliable way to determine end-of-day prices because they centralise liquidity and reduce manipulation.
For example, major US exchanges like the New York Stock Exchange use closing auctions that account for a large share of daily trading volume. These prices are used for index calculations, fund Net Asset Value (NAVs), and derivatives settlement.
By introducing the closing auction framework, India is aligning its market structure with global best practices. This is important as India attracts more foreign institutional investors (FIIs) and passive funds that expect internationally comparable pricing standards.
“The launch of CAS by Sebi on 3 August 2026 is a landmark initiative in implementing globally recognized best practice,” said the former BSE chairman. “CAS provides a future approach to improved price discovery and centralization of liquidity to a greater extent than was previously available.”
