SEBI Revises Closing Auction Session Rules And Derivatives Settlement Methodology Under New Framework In India

The Securities and Exchange Board of India (SEBI) has revised the rules governing the Closing Auction Session (CAS) in the equity cash market. The changes cover trading hours, the handling of pending orders and the calculation of settlement prices for derivatives contracts. The revised framework will take effect from 7 December 2026. However, the changes concerning the transfer of unexecuted limit and iceberg orders into the closing auction will take effect on 8 February 2027.

SEBI Changes Closing Auction Session Timings

Under the new framework, the 10-minute CAS will run from 3.30 pm to 3.40 pm on every trading day. The session will have three distinct phases to manage order entry and closing-price discovery.

In the opening minute, exchanges will set the reference price and move eligible orders from regular trading into the closing auction. Traders can then place market and limit orders between 3.31 pm and 3.36 pm.

During the next phase, only limit orders will be accepted. Market orders cannot be modified or cancelled during this period. The order-entry window will close at a randomly selected time between 3.38 pm and 3.40 pm.

Trading in index derivatives will continue until 3.45 pm on regular trading days. However, index derivatives contracts expiring on that day will stop trading at 3.30 pm. Stock derivatives will continue trading until 3.45 pm, including on expiry days.

The post-close session for the equity cash market will run from 3.50 pm to 4.00 pm. Trades executed during this period will be priced at the securities' closing prices.

SEBI Revises Derivatives Settlement Price Calculation

SEBI has also updated the methodology used to calculate settlement prices for derivatives contracts on expiry days. The revised approach will use the volume-weighted average price (VWAP) of the underlying securities during the final 30 minutes of continuous trading.

For index derivatives, exchanges will use the VWAP of the stocks that make up the index. The resulting figure will be used to work out the index's settlement value.

For stock derivatives, clearing corporations will use the VWAP of the underlying stock across all stock exchanges during the final 30 minutes of the cash market session. Exchanges must share the relevant VWAP figures and traded quantities with clearing corporations. They must also disseminate indicative values to market participants throughout this period.

New Rules For Pending Orders And Margin Requirements

The revised framework specifies how eligible unexecuted orders will move from the continuous trading session into the closing auction. Most pending limit orders will be carried forward, excluding stop-loss orders and orders outside the permitted auction price bands.

Unexecuted iceberg orders within the applicable price bands will be converted into fully disclosed limit orders. This will not apply if a market participant has opted out of the transition when placing the original order.

Orders carried forward from continuous trading will generally receive higher time priority than limit orders entered during the auction. However, converted iceberg orders will rank behind other limit orders carried forward from the continuous session. Modifying an order during the auction may also change its time priority.

SEBI has clarified that applicable margin requirements will apply at the individual order level during the closing auction. An exception will be available for eligible limit and iceberg orders carried forward from the continuous session. If these orders are modified during the auction, the relevant margin requirements will apply.

Stock exchanges and clearing corporations have been directed to update their standard operating procedures, in consultation with SEBI, within seven days of the circular's issuance.

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