SEBI Probes Early CAS Trades for Signs of Possible Price Manipulation

The Securities and Exchange Board of India is probing trades executed on 3 and 4 August during the Closing Auction Session, or CAS, to check whether the sharp end-of-day moves seen in those sessions were the result of genuine market activity or possible attempts to influence closing prices, according to a Moneycontrol report citing sources.

The scrutiny comes less than a week after CAS was introduced for eligible stocks, making the early sessions a crucial test of India’s new closing-price discovery mechanism.

Under the new framework, a separate 20-minute auction window begins at 3:15 pm IST after regular trading ends in eligible stocks. During that window, exchanges collect buy and sell orders. Order entry closes at a random point between 3:28 pm and 3:30 pm, after which the trades are matched at the price that allows the maximum executable volume.

The system replaced the earlier approach in which closing prices for such stocks were derived from the average price of trades executed in the final 30 minutes of continuous trading.

SEBI has described the new system as a significant step in strengthening India’s price discovery process. In its annual report, the regulator said the auction-based mechanism should help produce a closing price that is more transparent, stable and reliable, while bringing Indian markets closer to global practice.

But the first few sessions after the rollout triggered unusually sharp late moves in benchmark indices, prompting traders to question whether the new structure could be gamed.

Earlier reports had shown that the Nifty saw far larger shifts than the Sensex during the initial CAS sessions. According to a Moneycontrol report from 7 August, the average difference between the Nifty’s level at 3:30 pm and 3:15 pm over the first four trading sessions stood at about +0.42%. On the first day, the Nifty reportedly jumped more than 200 points during the closing phase. The index saw another move of over 150 points on the second day, followed by gains of around 50 points on the third and about 9 points on the fourth.

The Sensex, by contrast, showed a much smaller average difference of around +0.10% over the same period.

That divergence had already led traders and institutions to reassess the effect of the closing auction on index values, derivatives settlement and trading strategies. Since options contracts settle on the final closing value of the index, even modest movement during the auction window can materially affect payoffs near key strike prices.

Market participants have also raised concerns over differences between futures and spot-market behaviour near the close, as well as over visibility during the auction period. In regular trading, dealers can see bid and offer prices continuously. Under CAS, that price visibility is reduced during the final window, which changes how participants approach the close.

The regulator’s probe now shifts the focus from adjustment pains to market conduct.

According to the Moneycontrol report, SEBI is examining whether the trades executed during the first two sessions of CAS were genuine expressions of demand and supply or whether some market participants attempted to shape closing levels through concentrated orders during the auction window.

The concerns are significant because closing prices are used for a wide range of market functions, from valuation and fund NAV calculations to derivative settlement and benchmark tracking.

Even so, the data by 7 August suggested some of the early turbulence had begun to ease. Moneycontrol reported that volatility linked to CAS reduced considerably for the first time on 7 August. At 3:15 pm that day, the Sensex stood at 78,491.26 points and eventually ended at 78,499.17, while the Nifty moved from 24,557 at 3:15 pm to a final close of 24,570.65.

That narrowing gap offered some comfort that market behaviour could normalise as participants adapted. But SEBI’s review indicates the regulator wants to determine whether the sharp movements seen on the first two days reflected temporary adjustment or something more deliberate.

For now, CAS remains in place, and the regulator’s stated objective has not changed: to improve the quality and integrity of the closing price. The outcome of the probe will be watched closely, because it could shape how the market evolves under the new mechanism and whether additional safeguards are needed around the closing auction window.