The Securities and Exchange Board of India (SEBI) has put forward a proposal to integrate unexecuted Iceberg orders from the continuous trading session (CTS) into the Closing Auction Session (CAS). This strategic move is designed to significantly enhance market liquidity, foster greater transparency, and refine the price discovery process at market close.
Understanding Iceberg Orders
Iceberg orders are a sophisticated trading mechanism that allows large orders to be placed without fully revealing their total quantity in the order book. Traders only display a smaller, visible portion of the total order at any given time. As this visible portion is executed, subsequent portions become visible, helping to minimize market impact and manage price movements for substantial trades.
The Proposed Change for Closing Auction
Currently, unexecuted Iceberg orders from the CTS do not transition into the CAS, primarily because the closing auction operates on a disclosure-based framework. This means that the pending trading interest associated with these orders is not factored into the crucial closing price determination.
Under SEBI's new proposal, any unexecuted quantity of an Iceberg order remaining at the commencement of the CAS would be automatically converted into a standard limit order. Crucially, the entire pending quantity would then be fully disclosed and made available for execution within the CAS order book. This differs from the Iceberg order's original function in CTS, where only a fraction is visible.
For instance, if an Iceberg order for 10,000 shares, with 1,000 shares visible at a time, sees 6,000 shares executed during CTS, the remaining 4,000 shares would enter CAS as a single, fully visible limit order.
Goals: Liquidity, Transparency, and Price Discovery
SEBI emphasizes that this change aims to prevent valuable trading interest from being excluded from the closing price discovery process simply because it originated as an Iceberg order. By converting the outstanding quantities into normal limit orders, the full scope of available trading interest becomes transparent in the auction book.
This increased visibility is expected to contribute to a more robust and comprehensive determination of the closing price, creating better continuity between the continuous trading environment and the closing auction. The regulator believes these adjustments will support a more efficient and fair market closing mechanism.
SEBI has invited public comments on this proposal, alongside six other potential changes to the CAS framework, until October 3, 2026. This public consultation period allows market participants and stakeholders to provide feedback on the proposed regulatory amendments.