India's capital markets will undergo major change in the new trading hours and new CAS mechanism for Futures and Options (F&O) stocks from August 3 with new trading hours being introduced by the Securities and Exchange Board of India (SEBI) and National Stock Exchange (NSE). These changes aim to improve price discovery, market efficiency and remove the possibility of manipulation during market closing hours.
While regular trading hours for most investors will stay largely the same, F&O stocks and derivatives traders will have a new schedule. The changes are expected to affect institutional investors, active traders, hedge funds and participants in the derivatives market more than long-term retail investors.
New Market Timings Effective August 3
For non-F&O stocks, regular cash market trading will continue as usual until 3:30 PM. For stocks that are part of the F&O segment, the continuous trading in the cash market will conclude earlier at 3:15 PM.
Then there will be a Closing Auction session (CAS) between 3:15 PM and 3:35 PM. Derivatives trading, including futures and options contracts, will continue until 3:40 PM, giving traders 10 minutes beyond the normal close.
There is also a separate post-close session available from 3:50 PM to 4:00 PM. During this time, buy and sell orders will be executed at the final discovered closing price, improving price consistency and reducing volatility.
How the Closing Auction Session Will Work
The new CAS system will replace the traditional method of determining closing prices for F&O stocks. It will be done in several phases.
From 3:15 PM to 3:20 PM, the market will move into the auction session, and a reference price will be calculated. Between 3:20 PM and 3:25 PM, traders can place both market orders and limit orders.
The next phase will be from 3:25 PM to 3:30 PM. Participants will not be allowed to modify or cancel orders during this time. At 3:30 PM to 3:35 PM the exchange will conduct price discovery and order matching and will then set the final closing price.
The Closing Price Calculation
Until now, the closing price of F&O stocks was generally calculated using the Volume Weighted Average Price (VWAP) based on trading activity during the last 30 minutes of the trading session.
The closing price will be determined by a single auction process in which buy and sell orders are matched to achieve an equilibrium price. The auction-based approach is widely used in global markets and is considered more transparent and resistant to manipulation.
The VWAP calculation window for derivatives has also been extended. Now the reference period is extended to 3:40 PM, as the derivative trading hours are longer.
Impact on Investors and Traders
For long-term investors, the change will not affect daily investment activities. Most retail investors who buy and keep stocks for the long term will not perceive any major change in their trading experience.
However, the effect on F&O traders could be great. The additional 10 minutes of derivatives trading after the cash market auction will give them more flexibility in managing intraday positions, hedging strategies, and dealing with volatility (especially on expiry days).
Institutional investors and passive funds are also expected to benefit. Large funds often make large trades close to market close to align with benchmark indices. The auction-based closing mechanism would reduce sharp price swings due to large transactions and also allow the closing prices to be more transparent.
A step Toward global Best Practices
Experts say the CAS will bring Indian markets closer to international standards as well as the global exchanges on all levels of the market. And it will increase price discovery and decrease the chance that end-of-day manipulation will occur as a result of these efforts, improving investor confidence and market efficiency.
The new schedule and auction process are to be introduced to the market as the changes will take effect from August 3, traders and investors need to know that and keep it flowing as it is.
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