Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has declared that the regulator will take immediate and strict action against any attempts to manipulate the newly implemented closing auction session (CAS). The CAS was introduced to facilitate efficient price discovery at market close, but initial days saw complaints and noticeable discrepancies between pre-auction prices and final settlements.
Enhanced Detection Capabilities
Speaking at the FICCI Capital Markets summit, Pandey acknowledged increasing participation in the CAS but cautioned against any fraudulent activities. He stated, "We want to make one thing clear: if people do manipulation in CAS, then we will take strict action and do it immediately. And in the CAS system, we have more capability to catch manipulation compared to the old VWAP (volume weighted average price) system." Pandey underscored that CAS aims for transparency, and any attempts to defame the system through manipulation would be met with severe consequences.
Reviewing SME IPO Framework
In parallel, SEBI is actively reviewing the Initial Public Offering (IPO) framework for small and medium enterprises (SMEs). The objective is to streamline fundraising for legitimate businesses while simultaneously safeguarding investor interests and maintaining market integrity. Pandey highlighted existing issues within the SME framework, such as the creation of "odd lots" that hinder trading, inefficiencies in market-making and underwriting systems leading to increased costs, and challenges related to migration between segments. A comprehensive reform proposal is expected to address these concerns.
Fostering Global Fund Management from India
SEBI is also taking proactive steps to support global fund management activities originating from India. While acknowledging positive changes in tax laws, Pandey noted that certain portfolio management services (PMS) regulations require easing. He proposed relaxing these requirements, recognizing India's wealth of talent. "There is a lot of talent in India, and that talent is being used. But the point is they need not have to be in Singapore or elsewhere to trade in the global markets," Pandey remarked. The goal is to enable fund management decisions to be made from India, even if the funds remain offshore, thereby encouraging more Indian professionals to engage in global trading.
Responsible AI Use and Market Resilience
The SEBI chairman reiterated the importance of responsible application of new technologies like Artificial Intelligence (AI) and machine learning (ML) within capital markets. Guidelines for this are imminent and will feature a tiered approach, emphasizing clear accountability and robust governance controls. These guidelines will mandate a "kill switch" and "humans-in-the-loop" controls, alongside stringent data management. The aim is to strike a balance between fostering innovation and ensuring investor protection. SEBI is also exploring an IT resilience index for market infrastructure institutions (MIIs) to objectively assess the robustness of critical systems and is collaborating with MIIs to enhance API-based connectivity and interoperability.
Upcoming F&O Market Study
SEBI is scheduled to release a new study on trading in the futures and options (F&O) market for the financial year 2025-26 on Thursday, August 20. Previous data released by the regulator has consistently indicated that the majority of retail traders incur losses in this segment, prompting several measures to curb F&O trading. Recent parliamentary disclosures showed a reduction in net losses for individuals in the equity derivatives segment, though the average per-person loss slightly increased.