SEBI Sees No Manipulation In CAS, May Tweak If Needed, Says Tuhin Kanta Pandey

The Securities and Exchange Board of India is monitoring the new closing auction mechanism after its August 3 rollout, with Chairman Tuhin Kanta Pandey saying on Wednesday that the regulator could make changes if the data and feedback warrant them.

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Pandey was speaking on the sidelines of the Global Commodity Conclave in Mumbai. He said SEBI is examining market data and inputs from participants, including feedback shared on social media.
SEBI Monitoring Early Data

Pandey said the regulator has not identified manipulation in the new system so far. He added that SEBI is continuing to review the data rather than making an immediate change to the framework.

He also said the price differences seen during the initial session on August 3 have narrowed in subsequent sessions for both the Sensex and Nifty.

The regulator is also looking at ways to increase participation. Pandey said the initial challenge was more about participants becoming familiar with the mechanism and adapting trading systems and algorithms that were designed around the earlier closing-price process.

New Closing System Replaces VWAP Method

The Closing Auction Session is a separate 20-minute period in which buy and sell orders are collected and matched to establish the closing price at the level where the highest volume can be executed.

The system replaced the earlier method, under which the closing price was based on the volume-weighted average price of trades during the final 30 minutes of regular market hours.

Pandey said the change was intended to address weaknesses in the earlier system, including the possibility that a small trade close to the market’s end could have a disproportionate effect on the final price.

He said the new mechanism is also intended to provide a clearer reference price for passive investment and mutual fund net asset value calculations.

Brokers Add Indicative Prices

SEBI is also looking at participation in the auction. The system includes indicative prices during the session, allowing market participants to see how orders are shaping the potential closing level.

Pandey said several brokers have already started showing these prices on their websites. Zerodha and Upstox are among those that have introduced the feature on their web platforms and are expected to bring it to their apps.

Other large qualified stock brokers, including ICICI Securities, Groww and Angel One, are expected to add indicative prices to their platforms by August 14.

A random closing mechanism is also part of the system, aimed at preventing a last-minute order or trade from disproportionately affecting the final price.

Mutual Fund Participation Rises

SEBI said mutual fund participation in the new mechanism has increased from around 5%-6% on the first day to roughly 20%-25% subsequently.

Pandey said wider participation would be important as the market adjusts to the revised process. For investors tracking the Nifty share price and Sensex share price, the closing auction remains relevant because the final index levels depend on the closing prices of their constituent stocks. SEBI will continue reviewing the data and feedback before making any changes to the framework.