Summary of this article
Sebi introduced Closing Auction Session (CAS) for equity cash segment
CAS for equity cash segment will come into effect from August 3, 2026
CAS will operate as a separate 20-minute session from 3:15-3:35 PM on all trading days
The Securities and Exchange Board of India (Sebi) on January 16, 2026 issued a circular laying out the framework for the introduction of a closing auction session (CAS), which will be used to determine the closing prices of stocks in the equity cash segment of stock exchanges.
At present, the closing price of stocks in India is arrived at by using the last half an hour volume weighted average price (VWAP), which factors in the prices at which a stock trades during the final 30 minutes of the session, weighted by the volume executed at each level.
Sebi said in the circular that “globally, in major jurisdictions the closing price of stocks is determined based on CAS. Such a mechanism “aggregates market interest into a single pool of liquidity, thereby providing a fair and transparent closing price and improving the efficiency of execution for large orders.”
How Closing Auction Session (CAS) Will Work
Sebi said it will implement CAS in a phased manner. In the first phase, stock exchanges will determine the closing price of cash market stocks that have derivative contracts through CAS. For all other securities, exchanges will continue to use the existing mechanism of the VWAP of trades executed during the last 30 minutes of the continuous trading session (CTS).
CAS Timings And Structure
The CAS will operate as a separate 20-minute session from 3:15-3:35 PM on all trading days. The session will begin with a five-minute transition phase from the CTS between 3:15 PM and 3:20 PM, during which exchanges will calculate the reference price. This will be followed by a five-minute order entry window from 3:20 PM to 3:25 PM, when market participants can place both limit and market orders. From 3:25 PM to 3:30 PM, exchanges will allow only limit orders.
During this time, market participants will not be allowed to modify or cancel their market orders. The order entry session will then close randomly in the last two minutes. Sebi said this random closure “shall be system driven.”
Order matching will take place between 3:30 PM and 3:35 PM. After CAS, the cash market will close, while the equity derivatives segment will continue trading until 3:40 PM. The post-close session in the cash segment will run from 3:50 PM to 4:00 PM, during which trades will be executed at the closing price.
How Reference Price Will Be Decided
Exchanges will determine the reference price for CAS based on the VWAP of trades executed between 3:00 PM and 3:15 PM. If a stock does not trade during this window, “the last traded price (LTP) of the stock during the day shall be taken as the reference price.” If the stock does not trade at all during the day, exchanges will use the previous trading day’s closing price as the reference price, with suitable adjustments in case of corporate actions.
Price Band During CAS
During the auction session, stocks will remain within a price band of plus or minus 3 per cent from the reference price. Sebi has aligned the price band for stock futures between 3:15 PM and 3:40 PM with the CAS price band and clarified that the existing framework for dynamic flexing of price bands for stock futures will not apply during this period.
Only Limit And Market Orders Allowed, No Iceberg And Stop Loss
Market participants can place only limit orders and market orders during CAS, and exchanges will consider both for discovering the equilibrium price. Sebi has further said that “iceberg orders shall not be allowed” and that “stop loss orders shall not be allowed.”
Exchanges will determine the closing price using an equilibrium price mechanism, which Sebi defined as the price “at which the maximum volume is executable.” If more than one price meets this criterion, exchanges will select the price with the minimum unmatched order quantity, followed by the price closest to the reference price. If no equilibrium price is discovered, “then the reference price itself shall be the closing price.”
Market Orders Will Be Prioritised Over Limit Orders During Order Matching
Market orders will be given priority over limit orders. Exchanges will first match eligible market orders with other market orders based on time priority at the equilibrium price. They will then match any remaining market orders with limit orders, followed by the matching of remaining limit orders among themselves.
Treatment Of Unexecuted CTS Orders
All unexecuted limit orders of the continuous trading session will be carried forward to CAS, except stop loss orders, iceberg orders and orders with prices beyond the applicable price band. Sebi said the carried forward limit orders “shall have a higher time priority than limit orders placed during CAS.” However, if these orders are modified during CAS, their time priority will change.
Settlement Of Derivative Contracts
Since the methodology for computation of the closing price of stocks will change, Sebi has modified the provisions relating to settlement prices for derivatives. The regulator said the settlement price “shall be the closing price of the underlying index on the day of expiry,” with the closing price of the index based on the closing prices of its constituents. Stock exchanges will settle derivative contracts at a price calculated by clearing corporations based on the volume weighted average of the closing prices of the stock in the cash segment across stock exchanges.
How Pre-Open Auction Will Change
To bring the pre-open session in line with CAS, Sebi modified the framework for the call auction conducted before the start of regular trading. The pre-open session will continue to run for 15 minutes, from 9:00 AM to 9:15 AM, with clearly defined phases for order entry, a system-driven random close and order matching.
During the pre-open session, Sebi said “limit orders and market orders shall be entered” and both will be considered for the discovery of the equilibrium price. The regulator has barred iceberg orders and stop loss orders during this session and reiterated that market orders will take priority over limit orders in execution. Stock exchanges will continue to disseminate key information during the pre-open session, including the indicative equilibrium price, cumulative buy and sell quantity, imbalance quantity and the indicative index, to provide transparency to market participants.
When Will CAS Come Into Effect
According to Sebi, the framework for CAS will be implemented in the equity cash segment from August 3, 2026. The changes aimed at aligning the Pre-Open Auction Session with CAS will take effect from September 7, 2026. The regulator has also asked stock exchanges and clearing corporations to jointly put in place standard operating procedures, in consultation with Sebi, within 30 days of issuing the circular.
Why Sebi Introduced CAS In Equity Cash Segment
In its consultation papers dated August 22 and December 5, the regulator said that “over the years, passive fund investing has witnessed growing interest both globally and in India.” It said as the economy and capital markets have expanded, the weight of Indian stocks in major international indices has also increased over time.
Sebi also noted that since the domestic market does not currently support execution at the closing price, passive funds face the risk of index tracking errors, a cost that is ultimately borne by investors. Against this backdrop, Sebi said several large passive funds tracking global indices have called for the introduction of a closing auction mechanism in India.
Why CAS Is A Better Mechanism Than VWAP
In its August 22 consultation paper, Sebi said data and research suggest that CAS provides “a more stable and less volatile closing price compared to the volatility often observed under a Volume Weighted Average Price based closing price methodology, even when handling the same level of trading volumes.”
International passive fund houses have raised concerns that the existing VWAP-based closing price framework often leads to sharp price volatility and a higher likelihood of large orders remaining unexecuted, particularly on high-impact days, such as index rebalancing and derivative expiry sessions, the regulator said.
In contrast, Sebi said that CAS “concentrates liquidity in a single transparent auction, allowing all buy and sell interests to interact simultaneously.” This results in a single equilibrium price based on maximum matching of supply and demand.
Sebi also emphasised that shifting to CAS would bring India in line with global best practices followed by major exchanges, such as the New York Stock Exchange (NYSE), London Stock Exchange (LSE), Euronext, Hong Kong Exchanges and Clearing (HKEX) and the Australian Securities Exchange (ASX). At present, India is the only major market where the VWAP mechanism is used to determine the closing price, until now.
The regulator also said that CAS can help facilitate large institutional trades at a well-discovered price and act as a more efficient and transparent alternative to the block deal window. Unlike block deals, where prices are pre-negotiated between counterparties, CAS brings together buy and sell interest from institutional investors, domestic mutual funds, foreign portfolio investors (FPIs) and retail participants into a single price discovery process, thereby improving transparency and reducing the risk of information leakage.
