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Informist, Friday, Aug. 22, 2025

--SEBI issues consultation paper on closing auction session in cash segment

--SEBI mulls cash segment closing auction session for F&O stocks initially

NEW DELHI - The Securities and Exchange Board of India Friday issued a second consultation paper on the introduction of a closing auction session in the equity cash segment. The consultation paper revises an earlier one issued Dec. 5. In the latest paper, SEBI has proposed to initially apply a closing auction session to all stocks on which futures and options contracts are available. Earlier, the proposal was to include only stocks that are part of the Nifty 50 and the BSE Sensex.

The market regulator reiterated that the closing auction mechanism proposal was mainly to meet the needs of index funds and index exchange-traded funds. These funds would prefer a "more stable and less volatile closing price compared to the volatility often observed under a volume weighted average price based closing price methodology, even when handling the same level of trading volumes," SEBI said.

Friday's consultation paper differs from the Dec. 5 paper on the timings of the closing auction session. SEBI now wants the order entry period in the session for both limit and market orders to begin at 1520 IST and run for five minutes, and the order entry period for only limit orders, including random close in the last two minutes, to start at 1525 IST and run for five minutes. In the earlier paper, SEBI had proposed that the order input period, including random close in the last two minutes, start at 1531 IST and run for 10 minutes.

Further, the order matching period is now proposed to be for five minutes starting 1530 IST, as compared with four minutes starting 1541 IST. SEBI said it is proposing the closing auction to take place before close of regular market hours and not after because of certain factors, including problems that may be faced by funds in their trade allocation and settlement process if the closing auction is kept after 1530 IST.

SEBI has also revised its proposal on price bands that will be applicable during the closing auction session. It now proposes the price band to be from (-)3% to 3% from the reference price of the stock in the cash segment. Earlier it had proposed a price band of (-)5% to 5%.

The market regulator has also revised significantly its earlier proposal on order execution priority in the closing auction session. It now wants market orders to be given priority over limit orders at the time of execution. The earlier proposal was for limit orders to be given priority over market orders. "In case limit orders are given priority over market orders during execution... the same may result in reduced execution certainty for market orders, thereby affecting the volume maximization objective... (and) limit orders may dominate execution, potentially skewing the final equilibrium price towards the interests of limit order placers," SEBI said in Friday's paper.

In a new proposal, SEBI wants domestic mutual funds to be permitted to borrow funds on an overnight basis to meet the liquidity requirement arising from negative cash balances on account of trades undertaken in the closing auction session. The market regulator has invited comments on the proposals from market participants and the public by Sept. 12.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Rajesh Gajra

Edited by Rajeev Pai

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