Mint Explainer: How Sebi is planning to change closing price discovery

Subscribe to enjoy similar stories. The Securities and Exchange Board of India (Sebi) has asked stock exchanges and clearing corporations to implement a Closing Auction Session (CAS), a change that will alter how closing prices are determined in the equity market. In a consultation paper issued on Friday, the market regulator said that CAS will be implemented in the equity cash markets, bringing India at par with global markets that make use of the framework.

The move aims to improve price integrity and reduce volatility near market close. Mint explains what a closing auction session is and why it matters. A closing auction framework determines a stock’s closing price through an auction rather than continuous trading.

During the auction window, all buy and sell orders are collected together, and the system finds a single price at which the maximum number of shares can be traded. For example, if buyers are willing to buy 1 lakh shares at ₹100 and sellers are willing to sell 1 lakh shares at the same price, ₹100 becomes the equilibrium or closing price. No trades happen during the auction itself.

Instead, all eligible trades are executed at once at the final price. This replaces the current system, which calculates the closing price using the volume-weighted average price (VWAP) of trades over the last 30 minutes of the session. The framework comes with its own risks.

During the 30-minute window, prices can be pushed up or down deliberately through a few large trades, a practice known as ‘marking the close’. Under the new framework, the closing auction session will run for 20 minutes at the end of the trading day. All eligible orders placed during this period will participate in the auction.