16 October 2026 (Navroze Bureau) The Securities and Exchange Board of India (SEBI) has revised the rules governing the Closing Auction Session (CAS) in the equity cash market, changing trading timings, order placement procedures and the settlement methodology for expiring derivatives contracts. Most of the changes will come into effect on December 7, 2026, while certain rules governing the transfer of pending orders will take effect on February 8, 2027.
The changes follow concerns raised by market participants after the closing auction mechanism was introduced on August 3, 2026. Sharp price movements during the closing period had raised questions about their impact on derivatives contracts expiring on the same day.
SEBI’s revised framework aims to improve price discovery, clarify order-handling procedures and reduce the influence of closing-auction price fluctuations on derivatives settlement. The regulator has directed stock exchanges and clearing corporations to make the necessary operational changes before implementation.
Closing Auction Session to Run from 3:30 pm to 3:40 pm
Under the revised framework, the Closing Auction Session will operate from 3:30 pm to 3:40 pm on all trading days. The 10-minute session will follow a phased process for calculating reference prices, accepting orders and matching eligible buy and sell orders.
The first minute, from 3:30 pm to 3:31 pm, will be used for reference-price calculation and the transition of eligible orders from the regular trading session.
From 3:31 pm to 3:36 pm, traders will be allowed to place both market and limit orders. During the next phase, from 3:36 pm until the auction closes, only limit orders will be permitted. Market orders cannot be cancelled or modified during this final phase.
The order-entry window will close automatically at a randomly determined time between 3:38 pm and 3:40 pm. The system-driven closure is intended to reduce the possibility of traders anticipating the precise end of the auction and attempting to influence the final price.
SEBI Restores 30-Minute VWAP-Based Settlement
One of the most important changes concerns the settlement price of stock and index derivatives contracts expiring on a particular day.
SEBI has restored the earlier methodology under which settlement prices are calculated using the volume-weighted average price (VWAP) of the final 30 minutes of continuous trading in the equity cash market. This replaces the approach that linked expiry settlement to closing-auction prices.
For index derivatives, the settlement value will be calculated using the VWAPs of the constituent stocks. For stock derivatives, the underlying stock’s VWAP across stock exchanges will be used.
The regulator has also directed exchanges to provide indicative VWAP information during the relevant period, giving traders and other market participants better visibility into potential settlement values
Revised Trading Timings for Derivatives
SEBI has also adjusted derivatives trading hours to align them with the closing auction.
| Market segment | Revised timing |
|---|---|
| Closing Auction Session | 3:30 pm–3:40 pm |
| Index derivatives on normal trading days | Until 3:45 pm |
| Expiring index derivatives on expiry days | Trading ends at 3:30 pm |
| Stock derivatives, including expiry days | Until 3:45 pm |
| Cash-market post-close session | 3:50 pm–4:00 pm |
During the post-close session, cash-market transactions will take place at the applicable closing prices. The revised schedule separates the closing auction from the final period of derivatives trading and establishes clearer cut-off times for expiry-day contracts.
New Rules for Pending Orders and Iceberg Orders
SEBI has also clarified how unexecuted orders will be handled when regular trading transitions into the closing auction.
Eligible pending limit orders will generally move into the auction, except for stop-loss orders and orders outside the applicable price bands. Eligible iceberg orders may be converted into fully disclosed limit orders unless the trader has opted out of the transition when placing the original order.
Iceberg orders allow traders to divide a large order into smaller visible portions. Under the revised rules, eligible orders carried into the auction will be displayed as fully disclosed limit orders.
Orders carried forward from the regular trading session will generally receive higher time priority than new limit orders entered during the auction. Converted iceberg orders will have lower time priority than other eligible orders carried forward from the continuous trading session.
These order-transition provisions will take effect separately on February 8, 2027, rather than December 7, 2026, when most of the revised framework becomes effective.
Why SEBI Revised the Framework
The changes follow concerns about sharp price fluctuations during the Closing Auction Session, particularly when those movements affected the settlement of expiring derivatives contracts.
The auction mechanism was introduced to improve transparency and help establish closing prices through an organised process matching buy and sell orders. However, market participants raised concerns about the potential effect of auction-period volatility on futures and options positions.
By returning to the final 30-minute VWAP method for expiry settlement while retaining the closing auction for eligible cash-market securities, SEBI is separating two functions: determining cash-market closing prices and calculating settlement values for expiring derivatives.
The revised rules also introduce more clearly defined order-entry phases and specify how pending orders will be handled, providing exchanges and traders with a more structured closing process.
What Traders and Investors Should Know
For traders active in futures and options, the most significant change is the return to the 30-minute VWAP methodology for expiry-day settlement. Traders should also pay attention to the earlier trading cut-off for index derivatives expiring that day.
Cash-market participants should understand the revised auction timings and the distinction between market and limit orders during the session. Those using pending limit or iceberg orders should check their broker’s implementation guidelines, particularly ahead of February 8, 2027.
SEBI has instructed stock exchanges and clearing corporations to update their operating procedures and systems to support the new framework.
The revised rules are scheduled to take effect from December 7, 2026, with the specified order-transition provisions following on February 8, 2027.