- Continuous trading in F&O stocks will now end at 3:15 p.m., transitioning into a closing auction that determines the official closing price.
- Non-F&O stocks will continue trading until 3:30 p.m., while index and stock derivatives will trade until 3:40 p.m.
- The closing auction will collect buy and sell orders for 15 minutes after 3:15 p.m. and match them at a single equilibrium price that maximizes traded volume.
- Currently, the closing price is determined using the volume-weighted average price (VWAP) of trades executed in the last 30 minutes of continuous trading.
- The closing auction is expected to enhance transparency in determining closing prices, as it pools all orders and matches them at a single price.
- Brokers anticipate a modest hit to revenues due to the reduction of high-frequency and liquidity-providing trades around the close.
- The closing price is crucial as it is used to calculate indices like the Nifty and Sensex, settle derivative contracts, and determine mutual fund net asset values.
The new closing auction session (CAS) for futures and options (F&O) stocks, starting August 3, will significantly change end-of-day trading dynamics.135
Continuous trading will cease at 3:15 p.m., transitioning into a 15-minute auction to determine the official closing price, enhancing transparency and reducing the impact of last-minute trades.47
Brokers expect a 1-5% decline in revenue due to reduced high-frequency trading and liquidity-providing activities around the close. Ajay Garg, CEO of SMC Global Securities, noted that while institutional orders may migrate to the auction, some execution-driven trading could face pressure, impacting brokerage income.6
The CAS aims to pool buy and sell orders, matching them at a single equilibrium price, which will become the stock's official closing price. This contrasts with the current method, which uses the volume-weighted average price (VWAP) of trades in the last 30 minutes.
Nithin Kamath, co-founder of Zerodha, emphasized that the CAS will make it harder for large orders to influence closing prices, thereby improving execution for index funds and ETFs. Deepak Shenoy, founder of Capitalmind, added that the new framework could curb attempts to manipulate benchmark indices through large closing trades.
The CAS is expected to gradually attract institutional and passive fund trades, while retail participation will increase as investors adapt to the new process. The auction mechanism is designed to concentrate liquidity at the close, improving overall market robustness.
“Under the closing auction, buy and sell orders for eligible F&O stocks are pooled and matched at a single equilibrium price that becomes the official closing price, replacing the current 30-minute VWAP method. Zerodha Co-founder Nithin Kamath says passive funds' large end-of-day orders can move prices and increase tracking error.”
