Newsletter
A major breaking update came on Thursday night, as SEBI finally made revisions to the Closing Auction Session (CAS) framework following requests from market participants.
As complicated as it sounds, let us simply explain what was there before and what has now changed.
First, the latest: from December 7, the regular cash market will remain open until 3:30 PM. After that, a separate 10-minute auction will run from 3:30 PM to 3:40 PM to decide the official closing prices of certain stocks.
New system vs old system:
- So, in the new system, regular share trading will continue until 3:30 PM, followed by CAS from 3:30 PM to 3:40 PM. Previously, regular trading ended at 3:15 PM and CAS ran from 3:15 PM to 3:35 PM.
- In the new system, the market will take only one minute—from 3:30 PM to 3:31 PM—to prepare for the auction. Previously, this process took five minutes.
- In the new system, investors can place both normal orders and price-specific orders from 3:31 PM to 3:36 PM. From 3:36 PM, only price-specific orders will be accepted.
- In the new system, the auction will end at any random moment between 3:38 PM and 3:40 PM. This random ending is meant to stop traders from waiting until the final second to influence prices.
- In the new system, index futures and options will trade until 3:45 PM on regular days. However, contracts expiring that day will close at 3:30 PM. Stock futures and options will remain open until 3:45 PM even on expiry days.
- In the new system, investors can trade shares at their final closing prices between 3:50 PM and 4 PM through the post-close session.
- From February 8, most pending price-specific orders will automatically move into CAS. Large “iceberg” orders—which reveal only a small part of the full order—will also move into the auction as fully visible orders, unless the investor opts out.
The biggest change: on the expiry day of futures and options, their final settlement price will be based on the average traded price of the underlying shares during the last 30 minutes of regular trading - from 3 PM to 3:30 PM.
In simple words, one sudden move during the closing auction will no longer decide how expiring derivatives are settled. SEBI is returning to the method used before CAS was introduced.
Why was CAS introduced: earlier, a stock’s closing price was based on its average traded price during the final 30 minutes of the regular session. SEBI introduced CAS on August 3 to create a separate auction in which buyers and sellers could place their final orders together. The aim was to make closing prices more transparent and harder to influence.
What went wrong: after CAS started, some stocks witnessed sharp price swings during the auction. Participation was also low in some cases, meaning a small number of orders could cause a large price movement.
This became a bigger concern on derivatives expiry days because the CAS-determined closing price was also being used to settle expiring futures and options.
Traders, brokers and fund houses asked SEBI to reconsider the system. SEBI then released a consultation paper in September and received more than 20,000 suggestions.
The result? CAS is staying, but in a shorter and simpler form. And for derivatives expiry settlement, SEBI has brought back the familiar 30-minute average-price system.
