Sebi Firm on Closing Auction System, Promises Refinements Amidst Trader Outcry
Mumbai, India – The Securities and Exchange Board of India (Sebi) has firmly stated that the controversial Closing Auction Session (CAS) is here to stay, despite widespread concerns and reported losses among traders. Sebi Chairman Tuhin Kanta Pandey announced on Monday that while the regulator is open to making improvements, a complete abandonment of the system is not on the cards.
The Closing Auction Session (CAS), implemented on August 3rd, aims to establish a more robust closing price for stocks, a practice common in several developed markets. However, its introduction has been met with significant resistance from a large segment of Indian traders, particularly those involved in options trading. Many report experiencing substantial losses due to perceived price discrepancies and volatility during the CAS window.
"CAS is here to stay for sure," Pandey affirmed to reporters on the sidelines of a cybersecurity event at the National Institute of Securities Markets. "We will only see if there are certain constraints or issues that we can improve upon."
Sebi officials are currently undertaking a thorough analysis of trading data specifically related to CAS. This data review is being complemented by a careful consideration of suggestions and feedback received from various market participants and through social media channels. The regulator acknowledges the grievances, with a key concern being the significant price variations observed between 3:15 pm, when regular trading ceases and CAS begins, and 3:30 pm, when the final post-CAS price is announced by exchanges. Traders argue that this volatility disproportionately impacts them, while large institutions are perceived to be profiting at their expense.
Beyond CAS, Chairman Pandey also revealed that Sebi is actively working on revamping the existing Securities Lending & Borrowing Mechanism (SLBM). A dedicated committee has been established to refine this mechanism, which, despite being present in India for over two decades, has yet to achieve widespread adoption. While Pandey did not provide a specific timeline for these SLBM reforms, he emphasized the importance of this mechanism, noting that both CAS and SLBM are well-established and essential components of developed financial markets globally.
The regulator’s commitment to refining, rather than retracting, CAS indicates a belief in its long-term benefits for market integrity and price discovery. However, the onus is now on Sebi to address the pressing concerns of traders and implement effective modifications that mitigate adverse impacts and foster a more equitable trading environment. The ongoing data analysis and consideration of market feedback will be crucial in shaping the future of these vital market mechanisms.
