SEBI Changes Closing Price Calculation: Auction-Based Closing to Begin from August 2026; Know How it Will Work

Why SEBI Is Changing the Closing Price Mechanism

Until now, the closing price of a stock was calculated based on trades executed between 3:00 pm and 3:30 pm using the VWAP method. SEBI highlighted that this approach can sometimes create price distortions, especially when large market orders hit near the close. Such distortions can impact index values, derivatives settlement and mutual fund NAV calculations.

Most developed global markets already use auction-based systems for closing prices. SEBI stated that switching to an auction mechanism will improve transparency, reduce the chance of manipulation, support smoother settlement for derivatives, and help passive funds execute at fairer closing prices with reduced tracking errors.

What Changes With the Closing Auction Session (CAS)

With CAS, the closing prices of stocks in the equity cash segments(on which derivative contracts are available) will be determined through a dedicated 20-minute auction window that begins from 3:15 PM to 3:35 PM on all trading days. It starts with a five-minute transition phase (3:15 PM–3:20 PM) where exchanges calculate the reference price. Next, from 3:20 PM to 3:25 PM, traders can place both limit and market orders. After that, from 3:25 PM to 3:30 PM, only limit orders will be allowed, and market orders cannot be modified or cancelled. In the final two minutes of this phase, the system will shut the order entry window at a random time.

Order matching will occur during the last five minutes, from 3:30 PM to 3:35 PM. Once CAS ends, the cash market will close, but the equity derivatives segment will remain open until 3:40 PM. Then, a post-close session for the cash market will operate from 3:50 PM to 4:00 PM, where trades will be executed at the determined closing price.

CAS Timings & Session Details

Other Related Timings

During the Closing Auction Session (CAS), the order entry window will shut at a random time between 3:28 pm and 3:30 pm. This random closure is controlled by the system to prevent manipulation.

Even after the CAS ends, trading in equity derivatives will continue until 3:40 pm on all normal trading days.

After that, a post-close session for the cash market will run from 3:50 pm to 4:00 pm. In this session, trades will happen only at the closing price determined in CAS.

For special trading sessions, the closing price for cash stocks will also be decided through CAS, with the same duration as a regular CAS. On such days, the derivatives market will close 10 minutes after the CAS order entry period ends. Then, another 10 minutes later, a post-close session will begin, similar to regular trading days.

How the Closing Price Will Be Determined

After normal trading, the exchange conducts a Closing Auction Session (CAS) to decide the closing price. First, a reference price is set. This is usually the VWAP of trades between 3:00 pm and 3:15 pm. If no trades happen in that period, the Last Traded Price (LTP) of the day is used. If the stock didn’t trade at all, the previous day’s closing price is used, adjusted for corporate actions if needed.

Next, a ±3% price band is applied around the reference price. During CAS, traders can place only market orders and limit orders, while stop-loss and iceberg orders are not allowed. Unexecuted limit orders from the regular session are carried into CAS if they are within the price band, and these get higher time priority unless modified. 

The closing price is found using an equilibrium price mechanism. During CAS, the exchange also displays indicative prices, quantities, and imbalances for transparency.

Which Stocks Will Be Included Initially

SEBI will introduce the new system in phases. In the initial phase, starting August 2026, CAS will apply only to stocks in the cash market that have active derivatives contracts. All other stocks will continue under the existing VWAP-based closing mechanism until further expansion.

Order Rules During the Auction

During the auction window, investors may place both market orders and limit orders. However, certain order types will not be allowed to avoid complexity. According to SEBI, stop-loss and iceberg orders cannot be placed during CAS. Unexecuted limit orders from the continuous trading session will be carried forward into the auction, except for stop-loss orders, iceberg orders and those falling outside the applicable price band. Carried-forward orders will retain their original time priority unless modified during the auction. Market orders will get execution priority over limit orders. 

Settlement Price for Derivatives

Because the method for deciding stock closing prices is changing, the settlement price for derivatives will also change. On expiry, index derivatives will settle at the index’s closing price calculated from the closing prices of its stocks, and stock derivatives will settle based on the volume-weighted average closing prices across exchanges. SEBI, stock exchanges, and clearing corporations will create a common SOP within 30 days for this process.

During CAS, the existing risk management rules will apply, and margins will be required for orders (except carried-over limit orders unless they are modified). The exchange will also display indicative information like possible closing price, total buy/sell quantities, imbalance quantities, and an indicative index.

Pre-Open Session Also Aligned With New Framework

Alongside changes to the closing mechanism, SEBI has decided to align the pre-open auction system with the CAS framework for better consistency. The pre-open session will continue to run from 9:00 am to 9:15 am and will allow market and limit orders while following a similar equilibrium price discovery mechanism. This session will also feature a random closure in the final two minutes, with exchanges publishing indicative pricing and order imbalance information to increase transparency before market open.

Implementation Timeline and System Preparedness

The rollout will proceed in two key stages:

• Closing Auction Session (CAS): Effective from August 3, 2026
• Revised Pre-Open Session Framework: Effective from September 7, 2026

Stock exchanges and clearing corporations have been directed to upgrade systems, strengthen surveillance, revise risk management processes and issue detailed operational guidelines before the new frameworks go live.

What This Means for Market Participants

These changes are expected to benefit a wide range of market participants. Passive funds and mutual funds will find it easier to transact at closing prices with reduced tracking error, while institutional investors will benefit from a deeper and more structured liquidity window at the end of the trading day. Retail investors stand to gain from fairer and more accurate closing prices, with lower chances of end-day manipulation.

Conclusion

SEBI’s shift to an auction-based closing mechanism marks an important milestone in India’s journey toward globally aligned market infrastructure. By replacing the VWAP-based system with a structured auction, the regulator aims to enhance transparency, strengthen price discovery, support clean settlement processes and ultimately protect investors. The phased rollout through 2026 gives the ecosystem adequate time to prepare, ensuring a smoother transition for everyone involved.