SEBI to introduce new framework in cash equity segment to determine closing prices of stocks

Markets regulator SEBI on Friday decided to introduce a closing auction session (CAS) in the cash equity segment, a new framework that will make closing price discovery more transparent and robust.

The CAS will be implemented in a phased manner, SEBI said in its circular.

Currently, closing prices are determined using the volume weighted average price (VWAP) of trades executed over the last 30 minutes of continuous trading.
Under the new framework, SEBI will move closer to global practices where closing prices are discovered through an auction mechanism that aggregates market interests into a single liquidity pool, improves execution efficiency of large orders, supports fair settlement of derivatives and indices and facilitates transactions of passive funds at closing prices with lower tracking error.

The CAS will be implemented in stages. Initially, this will only apply to cash market stocks that have derivative contracts. For other stocks, the existing method based on VWAP will continue to apply.

According to SEBI, the CAS will operate for 20 minutes, from 3:15 p.m. to 3:35 p.m., on all trading days and will operate as a separate session after the continuous trading session.

It will include transition phases from continuous trading, order entry for market and limit orders, a limit orders only period with a random close in the last two minutes and final order matching.

The equity derivatives segment will continue to trade until 3:40 p.m., while the post-closing session in the spot market will run from 3:50 p.m. to 4:00 p.m., during which trades will be executed at the closing price.

The CAS reference price will be based on the VWAP of transactions between 3:00 p.m. and 3:15 p.m. If there are no transactions during this period, the last traded price of the day will be used; if there is none, the closing price of the previous trading day will apply.

A price band of plus or minus 3 per cent of the reference price will apply during the CAS period, SEBI said.

The price bands of stock futures contracts between 3:15 p.m. and 3:40 p.m. will be aligned with the CAS price band, and the existing dynamic price band flexibility mechanism for this period will be suspended.

Only market and limit orders will be allowed during CAS, while iceberg and stop-loss orders will not be allowed.

SEBI said all eligible orders will be used to determine the breakeven price, which is the price at which the maximum executable volume is reached.

If multiple prizes are eligible, the prize with the lowest quantity will be chosen; if the ambiguity persists, the price closest to the reference price will be used. If no equilibrium price appears, the reference price itself will be considered the closing price.

Market orders will have execution priority over limit orders. Unexecuted limit orders from the continuing trading session will be reported in the CAS, with the exception of stop-loss orders, iceberg orders and orders outside the applicable price range. These deferred commands will maintain a higher time priority unless they are changed during CAS.

Risk management and margin requirements applicable to the spot market will continue during the CAS period, with some relaxations for unmodified postponed limit orders.

As the closing price methodology is evolving, SEBI has also changed the settlement price framework for equity and index derivatives, which will now be based on closing prices discovered through CAS.

SEBI has asked stock exchanges and clearing companies to jointly formulate standard operating procedures for settlement prices and price band alignment within 30 days.

Additionally, SEBI has aligned the pre-open auction session with the CAS framework. The pre-open session will last 15 minutes, include market and limit orders, follow a similar equilibrium price mechanism with a random close, and provide greater transparency through the dissemination of guide prices and order imbalances.

The CAS framework will be implemented from August 3, 2026, while the revised pre-open auction framework will come into force from September 7, 2026, SEBI said.