SEBI Closing Auction Session: Proposed Changes and Impact

What are the proposed changes to SEBI market timings?

SEBI is currently reviewing the Closing Auction Session, market timings, and derivatives settlement methodology. The regulator held a meeting of its Secondary Market Advisory Committee on 15 October 2026 to discuss these proposed changes.

This process follows the initial introduction of the session on 3 August 2026. As of February 2026, the Stock Exchange of Hong Kong is the 6th largest stock exchange globally by market capitalization. Recent developments also include the National Stock Exchange receiving a No Objection Certificate on 1 October 2026 to launch corporate bond index futures. This initiative aligns with broader efforts to strengthen fixed-income market infrastructure, including electronic bidding platforms and request-for-quote systems. A regulatory circular detailing the final framework is the next major update to watch.

Why is SEBI reviewing the Closing Auction Session?

SEBI introduced the Closing Auction Session on 3 August 2026 for equity cash segment stocks that have futures and options contracts. The regulator implemented this auction-based mechanism to improve the closing price discovery process by matching buy and sell orders at a single equilibrium price.

This framework was established to increase price transparency and discovery for all F&O-eligible stocks. However, market participants have reported issues with increased volatility and price divergence between NSE and BSE benchmarks on expiry days. These concerns persist despite significant turnover in the F&O segment, which reached ₹275.77 lakh crore in October 2026 after fluctuating throughout the preceding months.

How was the closing price calculated before the auction?

Before the auction session began, the closing price was calculated using the volume weighted average price of trades executed during the final 30 minutes of the continuous trading session. This methodology was the standard for determining derivatives settlement prices on expiry days.

What are the proposed changes to expiry settlement?

SEBI is evaluating two primary options for calculating expiry settlement prices to address current market concerns. Option 1 suggests a blended volume-weighted average price that incorporates trades from the final 30 minutes of the continuous trading session and the 10-minute Closing Auction Session.

Alternatively, Option 2 involves returning to the previous volume-weighted average price methodology for at least one year before considering a transition. Many market participants have expressed a preference for retaining the older volume-weighted average price method for at least one year rather than moving to a blended approach immediately.

How might market timings change?

The regulator has proposed two options for adjusting market timings. Option A involves continuous trading until 3:30 pm, the auction session from 3:31 pm to 3:40 pm, and derivatives trading until 3:45 pm.

Option B proposes continuous trading until 3:15 pm, the auction session from 3:15 pm to 3:25 pm, and derivatives trading until 3:30 pm. The proposal suggests stopping the dissemination of the Indicative Index Value during the auction while continuing to show security-level indicative prices.

What are the proposed rules for orders during the auction?

New rules for the auction session would restrict order cancellations for orders placed beyond 1% and up to 3% from the reference price, although price-improving modifications would remain allowed. For iceberg orders, the proposal requires that any unexecuted quantities at the end of the continuous trading session convert into normal limit orders in the auction, with the full pending quantity disclosed.

How much feedback did SEBI receive on these proposals?

SEBI invited comments on its seven proposals through a consultation paper issued on 12 September 2026, setting a deadline of 3 October 2026. The regulator received a significant volume of feedback, with reports estimating between 3,500 and 20,000 comments submitted by market participants.

These submissions focused on the Closing Auction Session framework, expiry settlement, and market timings.

How will the SEBI derivatives settlement review impact traders?

SEBI chairman Tuhin Kanta Pandey stated that the regulator intends to review the submitted comments quickly. Because the proposals are clear, a regulatory circular is expected to follow soon to finalize the framework.