SEBI Mandates Early Orders in Stock Market Closing Auction
By Market Desk
SEBI directs Indian stock brokers to accept investor orders in the first 5 minutes of the Closing Auction Session to improve price discovery.
The Securities and Exchange Board of India (SEBI) has directed stock brokers to begin accepting investor orders during the initial five minutes of the Closing Auction Session (CAS). This directive specifies the 3:15 PM to 3:20 PM window within the broader CAS period.
This move aims to facilitate a smoother transition from regular trading into the auction phase, thereby enhancing the crucial process of price discovery. For instance, HDFC Securities has announced plans to implement this new order acceptance window starting in September.
Understanding the Closing Auction Session Framework
The CAS itself operates from 3:15 PM to 3:35 PM and incorporates a five-minute transition for calculating reference prices before the auction commences. Introduced three weeks prior, the CAS replaced the former Volume Weighted Average Price System (VWAP) with the goal of improving the determination of official closing stock prices.
The mechanism dictates that continuous trading concludes at 3:15 PM, after which the official closing price is established by pooling and matching all buy and sell orders. Market orders can be placed, modified, or canceled between 3:20 PM and 3:25 PM, while limit orders allow these actions until approximately 3:30 PM.
Addressing Market Volatility and Participation Concerns
Since its implementation, the CAS has been associated with unpredictable shifts in both index and individual stock prices. Traders have observed notable disparities between pre-auction price levels and the final settlement figures, raising questions about market stability during this critical period.
SEBI Chairman Tuhin Kanta Pandey acknowledged the increasing participation within the CAS. He stated that the regulator is actively examining any factors that might limit broader engagement, recognizing that new systems inherently require time for complete understanding and widespread adoption across the market.
SEBI’s latest instruction seeks to refine this evolving system, striving for greater efficiency and predictability in closing price discovery. The regulator’s continued oversight underscores its commitment to adapting market mechanisms for optimal performance.