SEBI Finds No Manipulation In New Closing Auction System

The Securities and Exchange Board of India (SEBI) has not found any evidence of manipulation in the newly introduced Closing Auction Session (CAS), according to Chairman Tuhin Kanta Pandey.

Pandey made this statement on August 12, while speaking at an event in Mumbai. He said that the regulator is continuously analysing market data and gathering feedback from stakeholders after the implementation of the new mechanism.

The Closing Auction Session is a major market structure reform aimed at aligning Indian markets with global practices. It is a separate 20-minute trading period introduced recently, during which exchanges collect buy and sell orders to determine the closing price at a level where maximum trading volume can be executed.

The new system replaced the earlier method, which calculated the closing price based on the volume-weighted average price (VWAP) of trades during the final 30 minutes of regular market hours. According to Pandey, the earlier system had limitations because a small trade near the market close could influence the closing price disproportionately.

Pandey said that the main challenge with CAS is not transparency but familiarity and participation. Market participants need time to understand the process, while trading algorithms and systems designed around the earlier methodology also require adjustments.

SEBI has been reviewing trading data following the transition to the new closing price mechanism. While the regulator has not identified manipulation so far, it continues to monitor activity and assess feedback from investors, brokers and other market participants.

The discrepancies seen on the initial days of implementation, including those observed on August 3, have reduced significantly in subsequent sessions for both the Sensex and Nifty. Several brokers have started displaying indicative prices on their platforms, and more large brokers are expected to provide similar information through their applications.

SEBI believes that greater availability of such information will encourage wider participation. The new system is particularly important for index-based and passive investments, as it provides a more accurate representation of market prices.

Pandey said that SEBI may make changes to the framework if necessary, and is evaluating suggestions to improve participation in the new system.

The introduction of the Closing Auction Session is a significant step towards aligning Indian markets with global practices. It is expected to provide a more transparent and efficient way of determining closing prices, and will help to reduce the risk of manipulation.

In the long run, the new system is expected to benefit investors and market participants, and will help to increase confidence in the Indian stock market.

The SEBI's decision to introduce the Closing Auction Session is a positive step towards improving the functioning of the Indian stock market, and is expected to have a significant impact on the market in the coming days.