- The new Closing Auction Session (CAS) mechanism for determining closing prices is here to stay, even as the market regulator Securities Exchange Board of India (SEBI) remains open to stakeholder feedback and possible tweaks to address any issues and for improvement.
- Several industry participants welcomed the move, as it provides a single price at which trades can be executed, countering criticism over tracking errors.
- Pandey noted that several market participants are yet to upgrade their systems, which were built around legacy processes and the earlier VWAP-based mechanism.
- Pandey described the change as a major microstructure change, noting that initial teething problems arise because people tend to believe major changes will be postponed.
- Pandey linked the success of CAS to attracting FPIs (foreign portfolio investors) and allowing passive investing, which is already 30% of the market.
- The regulator would soon issue a consultation paper on the securities lending and borrowing mechanism as part of efforts to strengthen and stabilise the CAS framework.
- On queries about manipulation, Pandey said SEBI is analysing data and is looking at all suggestions, with indicative prices being very important.
SEBI chairman Tuhin Kanta Pandey emphasized that the new Closing Auction Session (CAS)1
"CAS is here to stay for sure. We will see if there are certain constraints or certain issues that we can improve," Pandey stated during a recent event in Navi Mumbai.
The CAS aims to provide a single price for trades, addressing previous criticisms regarding tracking errors associated with the volume-weighted average price (VWAP) system.2
However, many market players are still adjusting to the new framework, which Pandey described as a major microstructure change. He acknowledged that initial teething problems are common when implementing significant changes, as some participants may not fully engage with the new system due to a belief that it would be postponed.4
Pandey also highlighted the importance of attracting foreign portfolio investors (FPIs) and facilitating passive investing, which currently constitutes 30% of the market. He noted that the regulator is preparing a consultation paper on the securities lending and borrowing mechanism to enhance the CAS framework.56
Regarding potential manipulation, Pandey assured that SEBI is actively analyzing data and considering feedback from various stakeholders, including social media.
"We need to meet our objectives. Many things will improve with participation. Indicative prices are very important," he concluded.78
“Pandey called CAS a major microstructure change, noting teething problems arise because people assume major changes will be postponed. He linked its success to attracting FPIs and enabling passive investing, which already constitutes 30% of the market, and announced a consultation paper on securities lending and borrowing.”
