SEBI Proposes Closing Auction Session for Better Price Discovery in Indian Equity Markets

India's securities regulator is overhauling its closing price mechanism to align with global standards. The Securities and Exchange Board of India (SEBI) plans to introduce a closing auction session (CAS) for equity cash markets, starting with highly-liquid derivative stocks. This phased implementation marks a significant departure from the current volume-weighted average price (VWAP) method used during the final 30 minutes of trading.

Market observers note the MOVE could reduce volatility and improve execution for institutional players. Passive fund managers have long criticized India's existing framework, citing tracking errors caused by last-minute price swings. The proposed auction system mirrors mechanisms used by major exchanges including Nasdaq, NYSE, and LSE - institutions that perfected closing auctions decades ago.

SEBI's consultation paper reveals strategic timing. By initially targeting derivative-linked stocks, the regulator can test the waters with instruments that already demonstrate robust liquidity. Market participants anticipate smoother order matching and reduced slippage, particularly for block trades that currently struggle during the chaotic final half-hour window.