SEBI revises closing auction rules, restores VWAP-based derivatives settlement

The Securities and Exchange Board of India (SEBI) has revised the closing auction session (CAS) framework, modifying auction timings, order-entry rules and the settlement methodology for expiring stock and index derivatives contracts. Most of the changes will take effect from 7 December 2026, while provisions governing the transition of unexecuted limit and iceberg orders into the auction session will come into force on 8 February 2027.

Under the revised framework, CAS will operate from 3:30 p.m. to 3:40 p.m. on all trading days. The transition from continuous trading to the auction will take place between 3:30 p.m. and 3:31 p.m. Both market and limit orders will be permitted from 3:31 p.m. to 3:36 p.m. Thereafter, only limit orders will be allowed, with order entry closing at a randomly determined, system-driven time between 3:38 p.m. and 3:40 p.m.

The reference price for eligible cash-market securities will be based on the volume-weighted average price (VWAP) of trades executed during the final 15 minutes of continuous trading. If no trade takes place during that period, the last traded price for the day will be used. If the security does not trade during the day, the previous trading day's closing price, adjusted for corporate actions where applicable, will serve as the reference price.

SEBI has also revised the settlement methodology for expiring derivatives contracts. The settlement price for index derivatives will be calculated using the VWAPs of constituent securities during the final 30 minutes of continuous trading in the cash market. For stock derivatives, settlement will be based on the VWAP of the underlying stock across exchanges during the same period.

Index derivatives will continue trading until 3:45 p.m. on regular trading days, while expiring index derivatives contracts will stop trading at 3:30 p.m. on expiry days. Stock derivatives will trade until 3:45 p.m. on all trading days, including expiry days. The cash-market post-close session will run from 3:50 p.m. to 4 p.m., with transactions executed at the respective securities' closing prices.

Only market and limit orders will be permitted during CAS. New iceberg orders and stop-loss orders will not be allowed. Unexecuted iceberg orders pending at the end of continuous trading, with prices within the CAS price band, will be carried forward as fully disclosed limit orders, unless the market participant opted out of such transition when placing the original order.

The revised framework follows SEBI's review of the auction mechanism, including consultation with market participants and recommendations from its Secondary Market Advisory Committee. The regulator said the review aimed to support efficient price discovery and the orderly functioning of the cash and derivatives markets.

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