The Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has confirmed that the recent rebalancing of the MSCI India index was successfully managed by the country's new Closing Auction Session (CAS) mechanism. This positive assessment comes despite initial concerns that the system might struggle with substantial institutional trading volumes.
CAS Proves Its Mettle in First Major Test
The latest MSCI rebalancing represented the inaugural significant trial for the CAS since its implementation. According to a Bloomberg report, Pandey highlighted that MSCI itself acknowledged the new mechanism's effective handling of trades linked to its index adjustments. The CAS was designed to establish closing prices through an auction session conducted after the regular trading hours conclude.
While the experience with the MSCI rebalancing was largely positive, the SEBI chief noted that the methodology for determining derivatives' closing prices under the new system is currently undergoing a review. This indicates an ongoing refinement of the framework to optimize its performance across all market segments.
Addressing Liquidity and Price Volatility Concerns
Pandey acknowledged that markets globally, upon introducing similar closing-auction mechanisms, frequently encountered initial liquidity challenges. However, he emphasized that liquidity typically improved over time in these instances. The CAS has faced scrutiny since its rollout, particularly regarding sharp price movements and overall market liquidity, prompting SEBI to examine specific elements of the framework.
On the day of the rebalancing, Indian equity benchmarks concluded higher, breaking a three-session losing streak. This occurred after significant price fluctuations in the final minutes of trade on Sensex expiry day, with the performance of the Closing Auction Session drawing considerable attention.