Securities and Exchange Board of India (SEBI). File | Photo Credit: Reuters
Markets Regulator, Securities and Exchange Board of India (SEBI) has proposed a new structure for the Closing Auction Session (CAS) in the Equity Cash Market, which begins with highly liquid derived stocks to determine the prices of closing of shares.
The proposal, if applied, is expected to reduce instability, improve fairness and make trades easier for large and passive investors to execute trades.
In his consultation paper, SEBI proposed that the CAS would be implemented in a phased manner, which begins with the stock available in the derivative segment – which are of sufficient liquidity – and later expanded to all shares based on the experience gained.
A closing auction session is a short trading period held at the end of the day to determine the final price of a security.
The regulator proposed that the session would be held separately for 20 minutes, from 3:15 pm to 3:35 pm, unlike the earlier proposal, which suggested it to operate between 3:30 pm and 3:45 pm after the market hours.
The session will be divided into four stages – reference price calculation, order entry, random closed and final matching.
The index derivatives will remain closed at 3:30 pm, while the near month’s stock derivatives will be closed at 3:35 pm.
To maintain orderly trading, the CAS will work within 3% up or down band of the reference price, which will be determined by using VWAP of trades between 3 pm and 3:15 pm.
The execution rules will also change with market orders that have obtained priority on the opposite-limit orders of the pre-fasting session. Any unexpected limit order from the continuous session will automatically move to CAS, but it cannot be modified, only canceled.
To increase transparency, SEBI has proposed the spread of real -time figures during CAS. This will include symbolic balance value, cumulative purchase and sales quantity and imbalance data-helping the participants to take better decisions for total and specific market orders.
However, SEBI also flagged off a possible challenge for passive mutual funds. On index rebalansing Days, these funds may face negative cash remaining after CA trades, as they usually avoid keeping cash to reduce trekking errors. This can cause disposal difficulties.
To address the issue, SEBI has suggested allowing passive mutual funds to borrow overnight to meet short -term liquidity requirements arising from CAS trades. In December 2024, the regulator proposed to introduce a CAS in the equity cash market to change the current volume weighted average price (VWAP) based method to determine the closing prices of shares.
Several changes have been included in the proposed revised CAS design, keeping in mind the stakeholders and subsequent discussions received in SEBI’s Secondary Market Advisory Committee.
SEBI highlighted that data suggests that “CAS offers a more stable and low unstable closing value, often seen while handling the same level of trading volume, compared to the instability seen under the VWAP based value method”.
The VWAP-based closing index can trigger instability on ribbalancing days, as it is to distort prices in large trades executed in the last minutes. On the other hand, the CAS pools all purchases reduces such malformations and sells orders in the same transparent auction, ensuring better value discovery and execution for institutional investors.
SEBI has sought public comments on the proposals till 12 September.
Published – August 23, 2025 09:59 PM IST
