Will Closing Auction Sessions Actually Deliver Better Price Discovery?
Market makers brace for impact as exchanges push final-price mechanisms.
The Closing Bell Conundrum
Traders hate uncertainty almost as much as they hate losing money—and closing auctions promise to solve both. These end-of-session mechanisms aggregate orders to determine a single closing price, theoretically reflecting true supply and demand without the noise of continuous trading. Exchanges love them; algorithms adjust; liquidity either coagulates or vanishes entirely.
Wall Street’s Ghost in the Machine
Traditional finance swears by the practice—NYSE’s closing auction handles billions daily. Crypto’s 24/7 nature rebels against such artificial endpoints. Yet here we are, aping equity market structure again. Because nothing says 'decentralized future' like mimicking 1980s market infrastructure.
Liquidity or Illusion?
Proponents argue concentrated liquidity beats fragmented orders. Skeptics call it a manipulated facade—just another tool for whales to paint the tape. When every altcoin’s 'official' closing price gets set in a 60-second window, expect spectacular volatility followed by eerie calm. Perfect for generating those clean charts retail loves—and terrible for anyone actually trying to exit at fair value.
Truth is, no mechanism fixes thin order books. But hey—if you can’t solve the underlying problem, just rebrand it as 'price discovery' and charge extra for the privilege. Typical finance: automate the theater, keep the humans for the cleanup.
Execution plans
According to SEBI proposal, CAS would be divided into four phases — reference price calculation, order entry, random close, and final matching and market orders will get priority over limit orders. Any unexecuted limit orders from the continuous trading session will automatically MOVE to CAS but cannot be modified, only cancelled.
To maintain orderly trading, CAS will operate within a 3 per cent up or down band of the reference price, determined using the VWAP of trades between 3 pm and 3.15 pm.
To enhance transparency, SEBI has proposed the dissemination of real-time data during CAS. This would include the indicative equilibrium price, cumulative buy and sell quantities, and imbalance data — both total and specific to market orders — helping participants make better-informed decisions.
With the introduction of CAS, the current post-closing session at exchanges would be discontinued
Are we ready?
No doubt, the the proposed mechanism ensures robust price discovery and enable institutional and large orders to transact with minimal market impact. When pre-market call auction was introduced in October 2010 by the exchanges, there were scepticism on its roll out and its efficiency on price discovery. So, from a technical perspective, it should not pose any challenge to market intermediaries.
Participants adopted it smoothly and the markets are functioning seamlessly. It has also arrested significant gap up or down during the opening session, unlike earlier days when the market used to swing wildly based on overnight global market triggers.
Given the significant retail participation in India compared to other developed markets, one has to wait and see how CAS arrests extreme volatility during the closing session, especially on index rebalancing and F&O settlement days. From that perspective, the roll-out of CAS in a phased manner, starting with derivative stocks, is a sensible move.
If the experiment shows no significant changes, SEBI should also be open to revert to the current VWAP mechanism, which is quite simple and integrates liquidity from all types of investors.
Published on September 5, 2025
