Market regulator Securities and Exchange Board of India (SEBI) has issued a revised consultation paper to seek public comments on introducing a Closing Auction Session (CAS) in the equity cash segment and to allow passive mutual funds to borrow overnight borrowing for liquidity needs arising from CAS trades. The proposal follows significant feedback and global alignment considerations.
In the consultation paper, SEBI has proposed to implement in a phased manner. Sebi in its paper noted, CAS to be implemented phased, initially covering stocks in the derivative segment to ensure liquidity and operational ease for passive funds.
Timings for CAS, will be 20-minutes, it will be session from 3:15 pm to 3:35 pm split into four stages of transition, market order entry, limit order entry, and order matching. The derivative market will remain open till 4:00 pm (except near-month expiry, closing at 3:35 pm).
Price Bands, there will be a reference price of plus and minus 3 percent to ensure fair execution of trades. The reference price, will be based on VWAP of trades from 3:00 pm to 3:15 pm, minimizing deviation from last traded price.
Order Priority, consultation paper noted that, market orders will get execution priority over limit orders to enhance execution certainty. On unexecuted orders, paper said, Limit orders from continuous trading may transition to CAS but cannot be modified (only cancelled) to maintain integrity.
For transparency there will be data dissemination, consultation paper said, Indicative price, cumulative imbalance, and imbalance from market orders to be displayed real-time for transparency.
Passive mutual funds risk negative cash balances on index rebalancing days due to execution uncertainty in CAS. SEBI proposes permitting overnight borrowing (within existing borrowing norms) to address this without affecting tracking error.
Currently, Indian market determines closing prices using VWAP (Volume Weighted Average Price), unlike major global exchanges (NYSE, LSE, HKEX, etc.) that adopt CAS. CAS offers several benefits like, stable closing price formation with lower volatility compared to VWAP. It also improves execution certainty for institutional investors, particularly during index rebalancing.
Aggregates buy and sell interests into a transparent auction, reducing market signalling risks linked to block deals. SEBI has sought comments on proposals by September 12, 2025.
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