Winning Bizness Desk

Mumbai.A major change is coming to India’s derivatives market from August 3, with the National Stock Exchange (NSE) extending the normal trading hours for equity futures and options (F&O) contracts by 10 minutes. The move will push the market closing time to 3:40 pm from the current 3:30 pm and is aimed at synchronising the derivatives segment with the new Closing Auction Session (CAS) being introduced in the cash market. The exchange believes the change will strengthen price discovery and bring greater alignment between the cash and derivatives segments.

Aligning cash and derivatives market operations

According to an NSE circular issued on Friday, the revised market closing time has been introduced to ensure a smoother transition between the cash market and derivative contracts at the end of the trading day. While the closing time will change, other market sessions will remain untouched.

Key points of the change include:

• F&O trading will continue till 3:40 pm from August 3.
• Pre-open session timings will remain unchanged.
• Trade modification windows will continue as before.
• Existing closing price calculation methodology will remain intact.

The exchange said the move is part of a broader effort to modernise market operations and improve consistency across segments.

How the closing auction session will work

The Closing Auction Session is a short trading period held at the end of the trading day to determine a fair and transparent closing price for securities. During this session, market participants place buy and sell orders, helping establish a single closing price based on market demand and supply.

Under the new framework, price bands and pre-trade risk controls applicable to the closing auction in the cash market will also influence the derivatives segment. This is expected to improve continuity between the two markets and reduce end-of-day pricing distortions.

The new system will be introduced in phases under SEBI guidelines issued on January 16. Initially, only stocks with available derivative contracts will have their closing prices determined through CAS. Other cash market securities will continue to use the existing VWAP-based method.

Changes traders and brokers must note

NSE has also announced operational changes linked to stock futures contracts. Whenever the operating price range of stock futures is reset after the commencement of the closing auction, the exchange will broadcast a notification to market participants.

Important operational points:

• Orders outside the revised price range will be automatically cancelled.
• Brokers will be able to test system changes through upcoming mock trading sessions.
• Trading applications must be updated before implementation.
• Exchange notifications will be issued whenever price ranges are revised.

These measures are intended to ensure a seamless transition before the new mechanism becomes fully operational.

VWAP window revised under new timing

Although the method of calculating derivatives closing prices remains unchanged, the time window used for determining the Volume Weighted Average Price (VWAP) will be modified. The closing price will now be based on trades executed between 3:10 pm and 3:40 pm instead of the earlier timeframe.

VWAP represents the average price of a stock after considering both price and trading volume. It is widely used by traders and institutions to assess the true market value of a security during a trading session.

Closing auction schedule explained

The Closing Auction Session will run daily from 3:15 pm to 3:35 pm for a total of 20 minutes.

• 3:15 pm to 3:20 pm: Transition phase from Continuous Trading Session to CAS. Reference price will be calculated using VWAP of trades executed between 3:00 pm and 3:15 pm.
• 3:20 pm to 3:25 pm: Market and limit orders can be entered.
• 3:25 pm to 3:30 pm: Only limit orders will be permitted. Market orders cannot be modified or cancelled.
• Between 3:28 pm and 3:30 pm: Order entry window will close randomly.

The exchange expects the revised framework to improve market integrity, enhance closing-price efficiency and bring domestic trading practices closer to international standards.