The Closing Auction Session will be introduced by NSE and BSE for stocks with futures and options (F&O) contracts from Monday, replacing the existing volume-weighted average price (VWAP)-based closing mechanism with a single equilibrium price. The new framework will come into effect on August 3, 2026, and will change the closing process for equity derivatives and cash market stocks.
Under the revised system, trading hours will become staggered across different segments. F&O stocks entering the auction process will stop regular trading at 3:15 PM, while trading in other cash market stocks will continue until 3:30 PM. Equity derivatives trading, including all stock and index futures and options contracts, will now continue until 3:40 PM instead of the existing 3:30 PM schedule.
According to Zerodha Chief Executive Officer Nithin Kamath, the new mechanism is aimed at reducing tracking errors and curbing late-day price manipulation. He said brokerages could face a decline in revenue because of the changes and may also receive a large number of queries from retail investors. Kamath stated that the new framework could reduce brokerage income by 1% to 5%, while helping to address concerns related to price manipulation.
How the Closing Auction Session will work
The new Closing Auction Session framework introduces a transition period and a dedicated auction window for F&O-linked stocks. A transition phase will run from 3:15 PM to 3:20 PM, during which the reference price for the auction will be calculated. No fresh orders will be allowed during this five-minute period.
After the transition period, the auction window will operate from 3:20 PM to 3:30 PM. During this session, only two order types will be accepted: Market on Close (MOC) orders and Limit on Close (LOC) orders. Standard market orders will not be accepted during the auction period.
NSE has also specified restrictions on order modifications and cancellations. Market orders cannot be modified or cancelled between 3:25 PM and 3:30 PM. Limit orders, however, can still be modified under specified conditions during the auction process.
For stock futures contracts, NSE will implement a fixed price band of ±3% based on a reference price determined after 3:15 PM. The exchange has clarified that dynamic price band revisions will not be permitted during the auction window.
The exchange said the changes apply to all stock and index futures and options contracts, while the existing pre-open session and market opening timings will remain unchanged.
Closing Auction Session changes for cash and derivatives markets
Initially, the Closing Auction Session will apply only to cash market stocks that have derivatives contracts. Stocks that do not have futures and options contracts will continue to trade under the existing schedule until 3:30 PM.
NSE has also announced that several market indicators will be published during the auction process. These include indicative prices, aggregate buy and sell quantities, order imbalance data and indicative index values. The information will be updated during the auction window to provide participants with additional market visibility.
The introduction of the new system will also affect derivatives settlement timings. With derivatives trading extended until 3:40 PM, the market will now have three separate closing times: 3:15 PM for F&O stocks entering the auction, 3:30 PM for non-F&O cash market stocks and 3:40 PM for derivatives contracts.
The exchanges have introduced the new structure as part of the implementation of the Closing Auction Session, which replaces the earlier VWAP-based closing price mechanism with a single equilibrium price for eligible securities.
