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The move appeared to surprise some intraday traders, especially those used to the old 3:30 pm closing pattern. Under the new structure, different parts of the market now close at different times. For F&O-linked stocks, continuous trading stops at 3:15 pm. These stocks then move into a closing auction process. Other stocks continue trading until 3:30 pm. Index and stock F&O contracts remain open until 3:40 pm.
What changed from August 3
The biggest change is that F&O stocks no longer use the old final 30-minute VWAP method to decide their official closing price. Earlier, the closing price was calculated using the volume-weighted average price of trades done in the last 30 minutes of trading. VWAP means the average price weighted by traded quantity.
This was used because the last traded price can be misleading. A stock may trade around Rs 1,000 for most of the day, but one small trade at Rs 980 near the close can make the last traded price look weak. VWAP reduces that distortion.
From August 3, the regulator has introduced a closing auction for stocks that have derivatives contracts. In this system, buy and sell orders are pooled and matched at a single price. That price becomes the official closing price.
The idea is to make the closing price more fairer, especially for large orders and passive funds that need to trade near the close.Also Read: Explained: What is CAS and what do new stock market timings mean for BSE, NSE traders?
How the auction works
For stocks under CAS, exchanges first calculate a reference price between 3 pm and 3:15 pm. This is based on the VWAP of trades during that period. At 3:15 pm, continuous trading stops. There is then a five-minute transition period until 3:20 pm. No fresh orders can be entered during this window.
From 3:20 pm to 3:25 pm, investors can place market and limit orders. Exchanges show details such as indicative price, buy quantity, sell quantity and order imbalance. From 3:25 pm to 3:30 pm, only limit orders can be placed. Market orders already placed cannot be changed or cancelled during this period.
The order entry window closes randomly between 3:28 pm and 3:30 pm This is meant to stop a last-minute rush of orders. From 3:30 pm to 3:35 pm, exchanges match the orders. The price at which the maximum quantity can be traded becomes the equilibrium price. That becomes the stock’s official closing price.
If two prices can execute the same quantity, the price with the lowest unmatched quantity is selected. If there is still a tie, the price closest to the reference price is chosen. If no price is discovered, the reference price is used.
Why Nifty moved so fast
The Nifty may have moved sharply because the closing prices of index stocks directly affect index calculation. The Nifty and Sensex are based on the market value of their constituent stocks. When the auction discovers closing prices for large index stocks, the index can move quickly even though regular continuous trading has already stopped for those stocks.
The 200-point jump in two minutes suggests that orders placed during the auction changed the final prices of some large stocks enough to move the index. Traders may also have been caught off guard by the new timings.
Intraday positions using MIS product type now have earlier auto square-off timings. For equity stocks under CAS, auto square-off is at 3:10 pm For equity stocks not under CAS, it is 3:25 pm For index and stock F&O contracts, it is 3:26 pm
That means some traders who were used to managing positions closer to 3:30 pm now have to adjust earlier.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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