SEBI revises closing auction and derivatives expiry settlement rules

Capital markets regulator SEBI has overhauled the closing auction framework for the equity cash market and established clear settlement procedures for expiring derivatives contracts, aiming to strengthen price discovery and curb late-session volatility.

The revised rules take effect on 7 December 2026, according to a circular issued by the Securities and Exchange Board of India. A secondary phase covering the migration of unexecuted limit and iceberg orders into the closing auction will take effect on 8 February 2027. Stock exchanges and clearing corporations must update their standard operating procedures within seven days.

Under the updated rules, the closing auction session runs for 10 minutes from 3:30 pm to 3:40 pm on all trading days, split into three distinct stages to ensure orderly order flow.

How the closing auction session works

The first minute, starting at 3:30 pm, is reserved for calculating the cash market reference price and transferring eligible pending orders from the continuous trading session. Between 3:31 pm and 3:36 pm, market participants may submit both limit and market orders.

From 3:36 pm onward, only limit orders are accepted. Market orders cannot be altered or withdrawn during this final stage. The order-entry window then concludes at an undisclosed, system-determined random moment between 3:38 pm and 3:40 pm to discourage last-second price manipulation. Once matching finishes, stock exchanges will publish the official closing price and total traded volumes.

The reference price used for the cash auction will rely on the volume-weighted average price (VWAP) of transactions during the last 15 minutes of continuous trading. If a stock does not trade during that window, its last traded price of the day applies. If it has not traded at all during the day, the previous session's adjusted closing price serves as the baseline.

Derivatives settlement and market timings

For index derivatives on expiry days, contracts will stop trading at 3:30 pm, while non-expiring index contracts continue trading until 3:45 pm on regular days. Stock derivatives will trade until 3:45 pm across all sessions, including expiry days.

Expiring index derivatives will settle against the underlying index value calculated from the 30-minute continuous trading VWAP of constituent stocks. Expiring stock derivatives will settle using the 30-minute cash VWAP across all exchanges, with clearing corporations receiving continuous indicative figures from exchanges.

Rules for unexecuted orders and margins

Pending limit orders will roll over into the closing auction automatically, unless they are stop-loss orders or fall outside auction price bands. Unexecuted iceberg orders within allowable bands convert into standard limit orders, though they will carry lower time priority than carried-over limit orders.

New stop-loss and iceberg orders are barred during the closing auction. While carried-forward orders avoid order-level margin checks initially, any modifications made during the auction will trigger standard margin requirements.