Market timings change from August 3: Everything you should know
What's the story
In a major overhaul, the Securities and Exchange Board of India (SEBI) and National Stock Exchange (NSE) will introduce a new Closing Auction Session (CAS) from August 3. The change is aimed at improving price discovery for eligible Futures & Options (F&O) stocks. The CAS will replace the current Volume Weighted Average Price (VWAP)-based closing mechanism with an auction-based system, affecting F&O traders, brokers, institutional investors, and passive funds significantly.
Market impact
Major structural change in equity markets
The introduction of CAS marks a major structural change in India's equity markets.
While long-term investors may not see much difference in their daily investing, the new framework is expected to have a bigger impact on F&O traders, brokers, institutional investors, and passive funds.
The new system will extend equity derivatives trading by 10 minutes, resulting in different closing times for different market segments.
Trading schedule
New closing times for different market segments
Under the new system, there will be three different closing times for different market segments.
Non-F&O stocks will continue to trade till 3:30pm as before. However, cash market trading of F&O stocks will end at 3:15pm and transition into CAS till 3:35pm.
For stock and index F&O, trading will continue till 3:40pm with a post-close session from 3:50pm to 4:00pm.
Auction process
CAS will have a structured timeline
The new auction process under CAS will follow a structured timeline.
From 3:15pm to 3:20pm there will be a transition from Continuous Trading Session (CTS) to CAS and reference price calculation.
This will be followed by placing of market and limit orders from 3:20pm to 3:25pm.
Only limit orders will be allowed between 3:25pm and 3:30pm during which market orders can't be modified or canceled with random order-entry closure between these timings.
Price discovery
Improving price discovery
With the introduction of CAS, all buy and sell orders will be pooled together and matched at a single equilibrium price.
This will become the official closing price for eligible F&O stocks.
This approach is expected to improve price discovery by reflecting the combined demand and supply from all market participants, instead of prices from trades executed at different times.
Trading advantages
Extended trading session under CAS welcomed
The extended trading session under CAS gives derivatives traders more time to hedge open positions, adjust trades after the cash market auction, exit intraday positions, and manage expiry-day volatility.
Zerodha co-founder Nithin Kamath has welcomed this change as it could improve price discovery and make execution of large trades more efficient.
He explained that passive funds tracking benchmark indices often execute large trades near market close to match index levels, and those transactions can move stock prices while being executed.