New Auction to Decide F&O Stock Closing Prices

Beginning August 3, stock exchanges are implementing a new method for determining closing prices for stocks in the futures and options (F&O) segment. This change replaces the existing system where closing prices were based on the average of trades in the last 30 minutes of trading.

The new system introduces a dedicated closing auction. Normal trading for F&O stocks will end at 3:15 PM, followed by the auction. During this period, buy and sell orders are collected, and a single price is determined where the maximum number of orders can be matched. This price will become the official closing price.

To ensure price stability, the auction price will generally stay within a 3% range of the stock's average traded price from 3:00 PM to 3:15 PM. Restrictions on order types and timings, including a random closing time between 3:28 and 3:30 PM, are designed to prevent last-minute manipulation by large orders.

This revised process is expected to benefit mutual funds by facilitating more efficient execution of their closing trades, potentially reducing tracking errors. Active traders and proprietary desks are anticipated to see the most significant impact, as they often operate near market close. While normal trading for most stocks still ends at 3:30 PM, F&O contracts will continue trading until 3:40 PM.