SEBI Revises Closing Auction Session Rules, Retains 30-Minute VWAP Settlement Method

The Securities and Exchange Board of India (SEBI) on Thursday revised the closing auction session (CAS) framework, retaining the 30-minute volume-weighted average price (VWAP) method for derivatives settlement while changing trading timings and the treatment of unexecuted limit and iceberg orders.

The changes follow concerns from traders and brokers over settlement prices, sharp price spikes and low liquidity after CAS came into effect on August 3. The revised framework will take effect from December 7, 2026, except for changes governing the transition of unexecuted limit and iceberg orders from the continuous trading session (CTS) to CAS, which will come into force on February 8, 2027.

Under the revised framework, the settlement price of index derivatives will continue to be based on the VWAP of constituent securities during the final 30 minutes of the CTS, from 3 pm to 3.30 pm, in the equity cash segment.

For expiring stock derivatives, clearing corporations will determine settlement prices using the VWAP of the underlying stock during the final 30 minutes of the CTS across all stock exchanges.

Exchanges will provide the VWAP and quantity traded to clearing corporations and continuously disseminate indicative values to market participants in real time during this period.

The regulator had considered a blended settlement mechanism in its consultation paper. However, several market participants raised concerns about the proposal, citing low liquidity during the relevant window.

Traders and brokers had favoured the 30-minute VWAP method, arguing that it was more familiar, transparent and operationally well understood.

SEBI's latest decision follows a consultation process that received more than 20,000 suggestions, followed by deliberations by the regulator's Secondary Market Advisory Committee on Thursday.

Revised Trading Timings For Derivatives

SEBI has also specified trading hours for index and stock derivatives under the revised framework.

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

Trading in stock derivatives will continue until 3.45 pm, including on expiry days.

Meanwhile, the post-close session in the cash segment will run from 3.50 pm to 4 pm, with trades executed at the closing prices of securities.

The revised timings form part of the broader changes to the closing auction framework, which was introduced to determine closing prices through a defined process and has faced criticism from sections of the trading community since its implementation.

New Rules For Unexecuted Limit And Iceberg Orders

SEBI has also clarified how unexecuted orders will move from the CTS to CAS, with the changes coming into force from February 8, 2027.

Pending limit orders will generally be carried forward, except for stop-loss orders and orders priced beyond the applicable CAS price bands.

Unexecuted iceberg orders within the applicable price bands will be converted into fully disclosed limit orders at a fixed or predetermined price, unless market participants opt out when placing the original orders.

An iceberg order is a large order split into smaller orders, with only a portion of the total quantity visible in the public order book.

Under the revised rules, converted iceberg orders will have lower time priority than other limit orders carried forward from the continuous session, but higher priority than limit orders placed during CAS.

The changes establish how these orders will be treated when the market transitions from continuous trading to the closing auction session.

How The Closing Auction Session Works

CAS is a 20-minute window from 3.15 pm to 3.35 pm during which the reference price is calculated and orders transition from the continuous trading session to the closing auction process.

The reference price calculation and transition from CTS to CAS take place from 3.15 pm to 3.20 pm, during which order entry is not allowed.

The next five minutes constitute an order-entry period. From 3.25 pm to 3.30 pm, order entry is restricted to limit orders, while modifications or cancellations of market orders are not allowed. Trading closes randomly during the final two minutes of this period.

The framework has drawn criticism from traders over settlement-price calculations, sudden price movements and limited liquidity in the auction window.

SEBI Drops Proposed Limit-order Cancellation Restriction

In its consultation paper, SEBI had also proposed prohibiting the cancellation of limit orders placed beyond a 1% range of the reference price during CAS.

However, the regulator did not include this restriction in the final circular.

The latest revisions retain the existing 30-minute VWAP settlement approach while addressing other aspects of derivatives trading, order transitions and post-close trading. Most of the changes will take effect in December, with the revised treatment of unexecuted limit and iceberg orders following in February 2027.