The Securities and Exchange Board of India (SEBI) has mandated that stock brokers must now accept orders from investors during the first five minutes of the Closing Auction Session (CAS). This directive is set to come into effect from September, according to industry sources like Dhiraj Relli, MD and CEO of HDFC Securities.
The CAS, which runs from 3:15 pm to 3:35 pm, includes an initial five-minute period (3:15 pm to 3:20 pm) designated as a transition phase for calculating reference prices before the main auction. Allowing brokers to accept orders during this window is intended to streamline the shift from regular trading to the CAS and significantly improve both price discovery and market liquidity.
Boosting Market Efficiency and Liquidity
Experts anticipate that this adjustment will address some of the unpredictability observed since the CAS was first introduced three weeks prior to this announcement. Previously, traders had noted considerable discrepancies between pre-auction price levels and final settlements, leading to concerns about market stability.
The Closing Auction Session was established to provide a more efficient mechanism for determining closing stock prices, replacing the older Volume Weighted Average Price (VWAP) system. SEBI chairman Tuhin Kanta Pandey had previously acknowledged that participation in the CAS was growing and that the regulator was actively examining any barriers to full engagement. He emphasized that new market mechanisms often require time for participants to fully understand and adapt.
Broker System Updates Required
To comply with SEBI's new mandate, stock brokers will need to implement necessary modifications to their existing trading systems. These updates will ensure that their platforms can seamlessly process and accept investor orders during the specified five-minute transition period within the CAS.
The move underscores SEBI's ongoing efforts to refine market operations and ensure a fair and transparent trading environment, particularly at critical junctures like the market close.