Closing auction session for equity cash segment comes into effect
The Closing Auction Session (CAS) in the equity cash segment became operational on Monday, ushering in a new auction-based mechanism to determine closing prices of eligible stocks.
Introduced by markets regulator SEBI, the new framework is aimed at making the price discovery process more transparent and robust, and applies only to cash market stocks with derivative contracts, while the existing volume-weighted average price (VWAP)-based methodology will continue for other stocks.
Before this, closing prices were determined using the VWAP of trades executed during the last 30 minutes of continuous trading.
The auction-based mechanism brings India closer to global market practices, where closing prices are discovered through an auction that aggregates buy and sell interest into a single pool of liquidity.
SEBI has said the framework is expected to improve execution efficiency for large orders, support fair settlement of derivatives and indices, and enable passive funds to transact at closing prices with lower tracking error.
Under the new system, the CAS will run for 20 minutes from 3.15 pm to 3.35 pm on every trading day as a separate session after the close of continuous trading.
The session comprises a transition phase from continuous trading, an order entry period for market and limit orders, a limit-order-only phase with random closure during the final two minutes, and the order matching process.
Trading in the equity derivatives segment will continue till 3.40 pm, while the post-close session in the cash market will take place from 3.50 pm to 4 pm, during which trades will be executed at the closing price discovered through CAS.
The reference price for the auction will be based on the VWAP of trades executed between 3 pm and 3.15 pm. In the absence of trades during this period, the last traded price of the day will be used. If no trade takes place during the day, the previous trading day’s closing price will serve as the reference price.
A price band of plus or minus 3 per cent from the reference price will apply during the auction session.
To ensure alignment across segments, the price bands for stock futures between 3.15 pm and 3.40 pm have been synchronised with the CAS price band.
The existing dynamic price band flexing mechanism during this period has been discontinued. Only market and limit orders are permitted during CAS.
According to SEBI, all eligible orders will be considered for determining the equilibrium price -- the price at which the maximum executable volume can be achieved. If multiple prices qualify, the one with the least unmatched quantity will be selected. If more than one price still qualifies, the one closest to the reference price will be chosen. If no equilibrium price is discovered, the reference price itself will become the closing price.
Market orders will receive priority over limit orders for execution.
Unexecuted limit orders from the continuous trading session will be carried forward into CAS, except stop-loss orders, iceberg orders and orders falling outside the applicable price band. Such orders will retain their original time priority unless modified during the auction session.
Risk management and margin requirements applicable to the cash market will continue during CAS, with certain relaxations for unmodified carried-forward limit orders.
With the change in the closing price methodology, settlement prices for stock and index derivatives will now be based on the closing prices discovered through the auction mechanism.
“With the CAS rollout from today, continuous trading in F&O-linked stocks stops at 3.15 pm and the market transitions into a 20-minute closing auction that determines the official closing price within a ±3 per cent band around a VWAP-based reference price. When large institutional orders are concentrated into this auction window, price can move quickly in the final minutes, especially if there is aggressive buying or short covering across heavyweight Nifty constituents,” Hariselvan Radhakrishnan, Founder & CEO of HST Wealth, a research analyst firm, said
The sharp late-session move in the Nifty from around 24,589 to the 24,774 region reflects this system-driven concentration of liquidity and orders into the new auction structure, amplifying the end-of-day adjustment rather than a gradual intra-day trend change, he added.
On Monday, the 30-share BSE Sensex jumped 544.39 points, or 0.70 per cent, to settle at 78,639.03. The 50-share NSE Nifty climbed 390.70 points, or 1.60 per cent, to end at 24,774.30.
