If you were tracking the market closing today, something unusual happened. In the last minutes of the trade, the Nifty spiked 200 points, and there was a distinct divergence between the Nifty and the Sensex at close. At first glance it could seem like a glitch, but in reality it wasn’t. It is Day 1 of the new Closing Auction Session (CAS) introduced by the exchanges. Though the relatively lower number of participants today led to a sharper price divergence, most market experts believe that this method of price discovery is a positive for the longer term.
What happened during closing trade today – Key details explained
Starting today, i.e. August 3, the market closing is in multiple parts. The Closing Auction Session (CAS) has been introduced in the Equity Cash Segment, applicable to F&O-eligible stocks. Explaining the divergence in Sensex Spot price and Nifty Future price with Nifty Spot today,
Chandan Taparia, Senior Vice President, Head – Derivatives & Technicals, Wealth Management, Motilal Oswal Financial Services explained that “what happened today is that the participants were significantly fewer, and this led to the sharp spike. Today being the first day, hardly anyone participated. And that was the key reason that we have seen some change in the prices, where Nifty spot is higher than the Sensex spot and the Nifty Future.”
Recounting the various possibilities, Taparia pointed out that “So I believe there might be two reasons. First, very few people participated in the CAS, today being the first day. It is new for everyone. Because the participants couldn’t understand, that’s why they have not participated. Ultimately, the aim is to avoid the sudden spike, which usually happens at 3 pm. So the reason for this is to avoid the speculation, which usually happens on the expiry day in the last 30 minutes. Because people punch higher order at 3 pm, and the rule thus far was to take the volumetric average from 3. So to avoid this, they consider the VWAP of 3 to 3.15. And then there will be the transition period.”
He added that there could be “some error in the calculation if there is any. So there might be only two reasons for this mispricing in spot price compared to the Sensex spot or compared to the Nifty future.”
Anand James, Chief Market Strategist, Geojit Investments, added that, “The main change is in terms of how closing price is arrived at, with the Call Auction Session replacing the VWAP-based system. While the closing timing has got extended by 10 minutes, the continuous trading takes a pause at 3:15, post which the reference rate is calculated, restrictions on new orders come in, order matching happens and the final closing is arrived at.
“From what we have seen today, the break in continuous trading post 3:15 pm leaves the option traders directionless for a while, as well as susceptible to spikes.”
What is the Closing Auction Session: Key details explained
As per the NSE circular, the Closing Auction Session (CAS) shall be implemented as a separate session of 20 minutes from 3:15 pm to 3:35 pm on all trading days. Essentially this will mean that the price discovery mechanism for F&O trading stocks will shift to a closing auction session from the 30-minute VWAP-based mechanism used so far.
Closing Auction Session: Key timings
| Time | Session stage | What investors can do |
|---|---|---|
| 3:15 pm–3:20 pm | Reference price calculation | Transition from continuous trading to the Closing Auction Session (CAS). |
| 3:20 pm–3:25 pm | Order entry — Phase 1 | Investors can enter, modify or cancel both limit and market orders. |
| 3:25 pm–3:30 pm* | Order entry — Phase 2 | Only limit orders can be entered, modified or cancelled. No action is permitted for market orders. |
| 3:30 pm–3:35 pm | Order matching and confirmation | Orders are matched and trades are confirmed. Matching begins immediately after the order-entry period closes. |
| 3:35 pm–3:50 pm | Transition period | Transition from the Closing Auction Session to the post-close session. |
| 3:50 pm–4:00 pm | Post-close session | Existing post-close session rules continue; only the timing changes. |
As per NSE circular, some of the key highlights of this closing mechanism include –
-CAS will be implemented for F&O-eligible stocks and the official closing price will be determined through an auction process.
-The reference price will be based on the VWAP of trades executed between 3 – 3:15 pm
-The applicable price band for eligible cash market securities will be ±3% from the reference price
-Only Limit Orders and Market Orders will be permitted during CAS. Stop Loss and Disclosed Quantity (DQ) orders will not be allowed
-The Trading session for the Equity Derivatives Segment will now be between 9:15 AM to 3:40 PM, effective August 3.
CAS Turnover Update on Day 1
Accoring to NSE data, on day 1 of implementing CAS during market close, the NSE turnover stands at Rs 1,276.2 crore. The top 10 stocks contributed around 30% of the total CAS turnover as per NSE.
The top-traded stocks on NSE (CAS Turnover) today included
–TCS
Price discovery via CAS a more transparent mechanism
So far the price discovery in the market was via the VWAP mechanism, where the ‘Volume Weighted Average Price’ is taken as a closing rate. In this case, the volume was also given weightage. Now, in the new model, volume would not make any difference; price discovery will happen on the basis of the orders that are punched in. A random snapshot is taken between 3:28 -3.30 pm and that would act as a reference price.
Sahaj Agrawal, Head of Derivatives Research, Kotak Securities explained that “the regulators have been working towards strengthening the market infrastructure and making it more and more transparent. It’s basically a stronger market infrastructure/stronger mechanism so that the price discovery is more transparent and eliminates the possibility of any volume impact or possible volume impact on the price. Overall, I think it’s a very strong step and this is in line with what happens across a lot of developed and global markets as well.”
Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, added that “the introduction of the Closing Auction Session (CAS) for F&O stocks is aimed at improving the fairness and integrity of the closing price. Instead of deriving the close from the last 30 minutes’ VWAP, the closing price will now be discovered through a call auction that matches the maximum executable buy and sell orders. This reduces the impact of large last-minute institutional trades, strengthens price discovery, and makes benchmark values such as mutual fund NAVs, ETF valuations, index closing levels, F&O settlement prices, and portfolio valuations more representative of actual market demand and supply. Overall, it enhances market transparency and efficiency.”
New market-closing system to instil greater confidence among investors
Despite the teething issues, market participants believe this method brings Indian market practices closer to global standards. Motilal’s Chandan Taparia explained that “as we see in global markets, futures trade comparatively for longer time. So even in the Indian market, this is being explored. That’s how the future price can be traded for more time than the spot price. And how they can eliminate the last-minute volatility or sudden spike due to the sudden buying and selling activity in the heavyweights.
Kotak’s Sahaj Agrawal also reiterated the advantage and pointed out that “this brings about more transparency. Since it’s in line with the global good practices, I think it’s going to only increase the confidence of the investors and make things more and more transparent.”
Disclaimer: This article is for informational and educational purposes only and provides commentary on stock exchange regulatory and operational updates. The expert views expressed do not constitute financial, trading, or investment advice. Readers and market participants should consult a SEBI-registered financial advisor before making any investment or trading decisions based on market closing mechanisms. This disclaimer has been generated using AI to support user well-being and responsible content consumption.