Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has affirmed that the Closing Auction Session (CAS), a new mechanism for determining end-of-day stock prices, is here to stay. His statement comes amidst various complaints from market participants regarding volatility and liquidity issues since its introduction.
Speaking at the Global Fintech Fest on Thursday, Pandey directly addressed the concerns, stating, “CAS is not going anywhere. CAS is here to stay.” This firm stance indicates the regulator's commitment to the new system, which was rolled out in August to enhance the efficiency of discovering closing stock prices, replacing the previous Volume Weighted Average Price (VWAP) system.
Market Complaints and SEBI's Perspective
Since its implementation, the CAS has drawn criticism, particularly concerning large, sudden price swings and last-minute order imbalances observed during the closing minutes of trade. These issues have been more pronounced on derivative expiry days, leading to calls for its review or removal. Liquidity challenges have also been frequently flagged by traders and investors.
However, Pandey countered these concerns by highlighting that such initial hurdles are not uncommon. “Many market participants have told us that initially everywhere the CAS was brought in, liquidity was always an issue and it builds up over time,” he explained. He also cited an acknowledgement from MSCI that a recent rebalancing event proceeded smoothly under the new CAS framework.
Future Review of Derivative Settlement
Despite the resolve to keep CAS, SEBI is not entirely dismissing market feedback. The regulator had previously indicated its intention to review the methodology for determining settlement prices of derivative contracts on expiry. A consultation paper on this specific aspect is expected to be issued soon, suggesting a willingness to fine-tune related processes without abandoning the core auction mechanism.
The CAS aims to provide a more robust and transparent method for price discovery at market close, aligning India's market practices with those in many other developed financial markets. SEBI's long-term vision is that the system will mature, and the initial challenges will subside as market participants adapt to the new trading environment.