SEBI has announced a change around how closing prices work for F&O stocks. If you trade derivatives or hold positions till market close, you need to understand this. You can refer to the circular here.
What’s Changing:
Current system: Closing prices are calculated using the Volume Weighted Average Price (VWAP) of the last 30 minutes of trading from 3:00 PM to 3:30 PM.
New system: Closing prices for F&O stocks will be determined through a 20 minute auction session from 3:15 PM to 3:35 PM, effective August 3, 2026.
Closing prices are used to settle F&O trades, calculate mutual fund NAVs, and set index values. With an auction, all buy and sell orders come together at one point instead of spreading out, which makes last-minute price moves harder and gives a fairer closing price. This is already the standard approach in most global markets.
Applicability:
This applies to stocks that have F&O contracts, around 200 - 300 stocks. All other stocks will continue to use the current VWAP-based closing price method.
Auction Session Structure
The 20-minute auction session is split into four stages:
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3:15 - 3:20 PM: The system calculates the reference price using the Volume Weighted Average Price from 3:00 PM to 3:15 PM and prepares for the auction. You can’t place orders during this phase.
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3:20 - 3:25 PM: You can place both limit and market orders freely during this time.
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3:25 - 3:30 PM: Limit orders are allowed, while market orders cannot be modified or cancelled. The session closes randomly between 3:28 PM and 3:30 PM, so the exact closing time isn’t known in advance.
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3:30 - 3:35 PM: System matches orders and determines closing price.
After this, F&O trading continues till 3:40 PM, and there’s a post-close session from 3:50 - 4:00 PM where you can trade at the closing price.
Order Rules
Reference Price: Before the auction begins, the system sets a base price called the reference price. It is calculated as the Volume Weighted Average Price of trades between 3:00 PM and 3:15 PM. If the stock did not trade during this period, the last traded price of the day is used. If there were no trades during the day, the previous day’s closing price is used.
Price Band: Orders must be within 3% of this reference price. If the reference price is 1,000, you can only place orders between 970 and 1,030. This prevents extreme price movements during the auction.
Allowed orders: You can place only limit and market orders in the auction. Orders like stop-loss or iceberg are not allowed.
Order priority: Market orders are executed first based on time priority. They are matched with limit orders first, and after that, limit orders are matched among themselves based on price priority first and then time priority.
Carried-forward orders: Any pending limit orders from normal trading automatically move into the auction if their price is within the 3% range. These get priority over new orders placed during the auction. Stop-loss and iceberg orders do not carry forward.
Closing Price Determination
The system sets the closing price where maximum volume can be traded. If multiple prices have the same maximum volume, it picks the one with the minimum unmatched quantity. If multiple prices still have the same minimum unmatched quantity, it chooses the price closest to the reference price. If no equilibrium is found, the reference price becomes the closing price.
Information display: Your trading terminal shows the indicative closing price, total buy and sell quantities, and indicative index values. This gives a sense of demand versus supply and helps you decide whether to place or adjust orders.
Impact on Different Traders
Intraday traders: Regular cash market trading ends at 3:15 PM for F&O stocks. The 3:00–3:15 PM window becomes important since it decides the reference price.
F&O traders: Settlements will be more transparent. You can continue trading futures and options till 3:40 PM, but the underlying stock’s closing price is set during the auction.
Delivery traders: Helpful for larger orders because buying and selling interest is pooled together. You can also trade in the post-close session at the final closing price.
Pre-Open Session Changes
Starting September 7, 2026, the morning pre-open also adopts this structure:
- 9:00 - 9:05 AM: Both limit and market orders can be placed.
- 9:05 - 9:10 AM: Only limit orders are allowed, and the session can close anytime between 9:08 and 9:10 AM.
- 9:10 - 9:12 AM: Orders are matched, and the opening price is decided.
- 9:12 - 9:15 AM: Transition to regular trading.
The same order rules apply here as well. Market orders get priority, and stop-loss or iceberg orders are not allowed.
Derivatives settlement
- Index derivatives will now settle using auction-determined closing prices of the underlying stocks.
- Stock derivatives will settle based on the volume-weighted average of closing prices across exchanges.
Implementation Timeline
- February 15, 2026: Exchanges submit their procedures to SEBI.
- August 3, 2026: Closing auction goes live.
- September 7, 2026: Updated pre-open session comes into effect.
Overall, this brings markets closer to global standards and aims to make closing prices fairer and more robust.
