India Implements Closing Auction System for Equity Markets

The Securities and Exchange Board of India has implemented a new closing auction system for stocks with tied derivatives to reduce volatility during the final minutes of trading and align with global standards. Beginning Monday, the auction will operate for 20 minutes starting at 3:15 p.m. Mumbai time, with orders matched in the final five minutes to determine a closing price within 3% of the reference price.

The regulator intends for the move to improve execution for large orders and provide a fairer reference price for index levels and derivatives settlements. However, industry figures warn of financial repercussions for specific trading strategies. Nithin Kamath of Zerodha estimates the change could reduce brokerage income by 1% to 5%.

Further concerns focus on arbitrage funds, which typically exploit price dislocations near the market close. Eshaan Lazarus of 021 Trade suggests that the new system could reduce returns for these funds by 10 to 15 basis points. Conversely, analysts like Kruti Shah of Equirus Securities argue the shift makes India's market structure more appealing to institutional investors who are already familiar with such mechanisms on major global exchanges.