From today, the stock market closing time is changing. The market is now operating with three separate end-of-day timelines. This means that the closing time for different categories of securities and the way closing prices are determined for stocks that have futures and options (F&O) contracts is changing.From today, the continuous trading in stocks with F&O contracts will conclude at 3:15 p.m. After that the stocks will enter a Closing Auction Session (CAS). For stocks that are not part of the CAS framework, the trading will continue trading until 3:30 p.m., while trading in index and stock derivatives will remain open until 3:40 p.m.The Closing Auction Session aims to concentrate liquidity at the end of the trading day. The idea is to facilitate smoother execution of large orders and generate a closing price that is more accurate in terms of reflecting overall market demand and supply.Index-tracking passive funds often execute sizable trades near the close to match benchmark closing prices. Such transactions can move prices during continuous trading and increase tracking error. By aggregating orders into a single auction, large buyers and sellers can execute trades more efficiently at one common price.The revised framework is also designed to reduce the influence of large last-minute orders on the closing prices of stocks and benchmark indices.Similar closing auction mechanisms are already in place at several major global exchanges, including the New York Stock Exchange and the London Stock Exchange.
What changes for investors?
A key change for investors is that F&O-linked stocks will not stop trading completely at 3:15 p.m. Only continuous trading will end at that time, following which a 20-minute auction will take place until 3:35 p.m. to establish the official closing price.At present, a stock’s closing price is calculated using the volume-weighted average price (VWAP) of all trades executed during the final 30 minutes of continuous trading.Under the revised framework, all buy and sell orders in eligible stocks will be collected during the auction and matched at a single equilibrium price, according to an ET report. In the initial phase, the Closing Auction Session will apply only to stocks with listed derivative contracts. All other securities will continue to follow the existing closing price methodology based on the 30-minute VWAP, in line with a SEBI circular.The official closing price serves as a key market benchmark. It is used to calculate indices such as the Nifty and Sensex, determine the net asset value (NAV) of mutual funds, settle derivative contracts on expiry, value pledged securities and compute portfolio profit and loss.
What happens after 3:15 p.m.?
Between 3:00 p.m. and 3:15 p.m., exchanges will calculate the volume-weighted average price (VWAP) for each eligible stock. This VWAP will serve as the reference price for the Closing Auction Session.At 3:15 p.m., continuous trading in eligible stocks will end and the market will move into the CAS. A five-minute transition period will follow until 3:20 p.m., during which no fresh orders can be entered.Most open limit orders from the continuous trading session will automatically carry over into the auction. However, stop-loss orders, iceberg orders and orders placed outside the permitted CAS price band will lapse and will not be transferred. The permissible price range for the auction will be set at 3% above or below the reference price.From 3:20 p.m. to 3:25 p.m., investors will be able to place both market and limit orders. During this period, exchanges will publish key auction information, including the indicative equilibrium price, cumulative buy and sell quantities, order imbalances and indicative index values.Between 3:25 p.m. and 3:30 p.m., only limit orders can be submitted. Market orders placed earlier cannot be modified or cancelled during this stage.The order entry window will close at a randomly selected time between 3:28 p.m. and 3:30 p.m. This system-generated random closing is intended to prevent a surge of orders in the final moments of the auction.From 3:30 p.m. to 3:35 p.m., exchanges will stop accepting orders and begin matching them. All eligible trades will be executed at a single equilibrium price, which will be designated as the stock’s official closing price.