Sebi chief Tuhin Kanta Pandey on Monday said the Closing Auction Session (CAS) will stay even as concerns of stakeholders would be looked into. While most traders understand the moot point of the CAS, they overlook the details that impact their own orders, writes V Shunmugam as he gives the lowdown on how it works
UNTIL AUGUST 1, 2026, the closing price of a stock was calculated as the weighted average of trades over the last 30 minutes. But from August 3, it has been determined in a Closing Auction Session (CAS), held after the market closes for the day. It is determined by a single price set during a separate session from 3:15 pm to 3:30 pm.
The reason is straightforward: an average is just a number displayed on a screen, and no one can buy or sell exactly at that point. Index funds and exchange-traded funds are required to transact at the closing price because their performance is measured against it.
With the previous approach, they could only trade within a 30-minute window, hoping to get close to that price. An auction consolidates all interested parties into a single order book, resulting in a single closing price.
This rule applies only to stocks with futures and options contracts, and the change will expand gradually. All other stocks continue to close based on the old volume-weighted average and trade normally until 3:30 pm. If a stock loses its derivative contracts on both exchanges, it reverts to the previous method.
From 3:15 PM to 3:20 pm, no orders can be placed as the exchange is calculating and publishing the reference price. Between 3:20 pm and 3:25 pm, users can place, modify, or cancel both market and limit orders. After 3:25 pm, only limit orders are permitted.
The session concludes unpredictably between 3:28 pm and 3:30 pm, preventing anyone from timing the final second. The system then selects the price at which the largest quantity can trade. That is the close. Market orders are included in the calculation.
A fixed band around the reference price remains unchanged during the session, and orders outside it are rejected. If the book cannot produce a matching price, the reference price becomes the close, with no separate announcement.
Four key pieces of information are visible: the current indicative auction settlement price, total buy and sell quantities, their imbalance, and an indicative index. Earlier, these were not accessible; the closing book was essentially a black box. For auction stocks, the indicative closing price shows zero between 3:00 pm and 3:15 pm. Only after 3:20 pm it begins displaying the auction price. This behaviour is intentional and not due to a malfunction.
A standard limit order positioned in the book at 3:15 pm remains at the front of the queue during the auction, even if later orders are added. However, this advantage is fragile. Changing the price moves your order to the back, while reducing the quantity allows you to retain your position.
Orders such as stop-loss, iceberg, disclosed quantity, and those outside the revised band are cancelled by the exchange one at a time. Unmatched orders are also cancelled when the auction concludes.
The displayed imbalance in the final minutes should have meaning. If a large market order could be executed at 3:29 pm, traders might doubt the numbers, causing a reluctance to take the opposite side.
Limit orders remain modifiable due to price protection, however immediate-or-cancel orders are not allowed.
It represents what a retail investor sees as tonight’s portfolio value, what determines a mutual fund’s net asset value, and the actual trading price of an index fund. Corporations base their employee stock options, buybacks, and market capitalisation on it. Lenders appraise pledged shares using it.
It also supplies data for the index published by the exchange and facilitates settlement flows through the clearinghouse. The closing price thus sets prices for a rapidly expanding pool of passive investments.
The closing price needs to be a price that can actually be traded and is resistant to manipulation. This isn’t an Indian experiment; major international markets already determine their closing prices through auctions, and India has adopted this method rather than creating its own. The Securities and Exchange Board of India’s (Sebi) goal is to establish a closing price that is more robust and less susceptible to manipulation.