The National Stock Exchange (NSE) has announced changes to the Closing Auction Session (CAS) in the equity cash segment and trading modalities in the equity derivatives segment, with the revised framework set to take effect from December 7.
The exchange issued two separate circulars on November 6, following the Securities and Exchange Board of India’s (SEBI) October 15 review of the Closing Auction Session, market timings and settlement methodology for derivatives contracts.
The changes include shortening the closing auction session to 10 minutes, revising the methodology for determining closing prices of eligible stocks, extending derivatives trading hours to 3:45 pm and changing the calculation of expiry-day settlement prices for stock and index derivatives.
What changes in the Closing Auction Session?
Under the revised framework, the Closing Auction Session will operate from 3:30 pm to 3:40 pm on all trading days.
The session will have the following schedule:
- 3:30 pm to 3:31 pm: Reference price calculation and transition from the Continuous Trading Session (CTS) to CAS.
- 3:31 pm to 3:36 pm: Order entry, modification and cancellation for both market and limit orders.
- 3:36 pm to 3:40 pm: Only limit orders can be placed, modified or cancelled. Market orders cannot be modified or cancelled. The order-entry period will close randomly during the last two minutes.
- 3:40 pm to 3:45 pm: Order matching and trade confirmation.
- 3:45 pm to 3:50 pm: Transition period.
- 3:50 pm to 4 pm: Post-close session.
The CAS will continue to apply to securities for which derivative contracts are available on any stock exchange, subject to specified exceptions.
How will stock closing prices be calculated?
The reference price for securities covered under CAS will be determined using the volume-weighted average price (VWAP) of trades executed between 3:15 pm and 3:30 pm.
If no trades take place during this 15-minute period, the last traded price (LTP) of the security during the day will be considered. If there are no trades during the day, the previous trading day’s closing price will be used, adjusted for corporate actions wherever applicable.
The price band during CAS will be 3% above or below the reference price.
For securities covered under CAS, the closing price will be determined through the equilibrium price discovered during the auction. If an equilibrium price is not determined, the reference price will be considered the closing price. If there is no trade in the security during the day, the latest available closing price will be considered.
Only market and limit orders will be allowed during CAS. Stop-loss and disclosed quantity orders will not be permitted. Unexecuted eligible limit orders from the continuous trading session will be carried forward to CAS, subject to the revised price band and other conditions.
What changes in equity derivatives trading hours?
The NSE has also revised trading hours for stock and index derivatives.
Under the new schedule, trading in stock derivatives will continue until 3:45 pm on all trading days, including expiry days.
For index derivatives, trading will also continue until 3:45 pm on regular trading days. However, on expiry days, trading in contracts expiring that day will stop at 3:30 pm. Other index derivatives contracts will continue to trade until 3:45 pm.
The trade modification window will remain open until 4:15 pm for both stock and index derivatives.
How will F&O price bands change?
The exchange has aligned the price bands for stock and index futures with the revised closing auction framework.
Between 3:30 pm and 3:45 pm, the price bands for stock and index futures will be set at 3% above or below their respective reference prices.
The reference price will be calculated using the VWAP of trades executed in the respective futures contracts between 3:15 pm and 3:30 pm.
If no trades take place during this period, the last traded price of the contract during the day will be considered. If there are no trades during the day, the theoretical price of the contract will be used, based on the underlying stock’s cash-market price at 3:30 pm or the latest available underlying index value.
The existing methodology for options price bands and Limit Price Protection (LPP) ranges will remain unchanged throughout trading hours, including CAS.
How will expiry-day settlement prices be calculated?
The NSE has also revised the methodology for calculating final settlement prices of expiring stock and index derivatives contracts.
For expiring index derivatives, the settlement price will be based on the underlying index value calculated using the VWAP of its constituent securities during the last 30 minutes of the Continuous Trading Session in the equity cash segment, from 3 pm to 3:30 pm.
For expiring stock derivatives, the settlement price will be based on the VWAP of the underlying stock during the same 30-minute period across all stock exchanges.
The exchange has also revised the reference-price calculation and price-band framework for stock and index futures to align them with the changes in the cash segment.
The NSE said the functional changes arising from the revised framework would be available for testing during mock trading sessions. Separate circulars will be issued regarding these sessions.