SEBI proposes bringing unexecuted Iceberg orders into closing auction

The Securities and Exchange Board of India (SEBI) has proposed allowing unexecuted Iceberg orders from the continuous trading session (CTS) to participate in the Closing Auction Session (CAS), in a move aimed at improving liquidity and transparency in the closing price discovery process.

Under the proposal, the pending quantity of an Iceberg order at the start of CAS would be converted into a normal limit order, with the entire unexecuted quantity disclosed in the CAS order book. The proposal is part of SEBI's broader review of the CAS framework introduced for F&O stocks from August 3, 2026.

How Iceberg orders work

Iceberg orders allow traders to place a large total order while displaying only a smaller portion of that quantity in the order book at any given time. The remaining quantity becomes visible in parts as the disclosed portion is executed.

SEBI noted that, under the existing framework, unexecuted Iceberg orders placed during CTS are not transitioned into CAS because the closing auction operates as a disclosure-based framework. This means pending trading interest associated with such orders does not currently participate in the closing auction.

The regulator is now proposing to change this treatment.

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Full pending quantity to be disclosed

Under the proposed framework, any unexecuted quantity remaining when CAS begins would be converted into a normal limit order and entered into the CAS order book. Unlike an Iceberg order during CTS, the entire pending quantity would be disclosed and made available for execution under the CAS matching mechanism.

SEBI illustrated the proposal with an example involving an Iceberg order for 10,000 shares, of which 1,000 shares are visible at a time. If 6,000 shares are executed during CTS and 4,000 shares remain when CAS begins, the remaining 4,000 shares would be moved into CAS as a normal limit order. The full 4,000-share quantity would be visible in the auction order book.

Focus on liquidity and price discovery

SEBI said the proposed change is intended to ensure that trading interest still available for execution at the beginning of CAS is not excluded from the closing price discovery process simply because the order was originally placed as an Iceberg order during CTS.

Converting the outstanding quantity into a normal limit order would also make the amount of trading interest available for execution fully visible in the auction book. According to SEBI, this could enhance transparency and allow the pending interest to contribute to the determination of the closing price.

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The proposal is therefore aimed at creating greater continuity between continuous trading and the closing auction while preserving the distinctive characteristics of Iceberg orders during CTS. SEBI said the changes would support a more comprehensive closing price discovery process.

The regulator has invited public comments on the proposal, along with six other proposed changes to the CAS framework, until October 3, 2026.