SEBI Sees No Flaws In Closing Auction Session, Rules Out Immediate Changes

The Securities and Exchange Board of India has no immediate plans to modify the newly introduced Closing Auction Session framework and will continue to monitor its rollout closely, according to a report by Moneycontrol.

SEBI sees no flaws in the design or technical architecture of the framework and is not currently considering any revisions to it, the report said.

SEBI Chairman Tuhin Kanta Pandey met several market participants and brokers on Tuesday. Although the meeting was originally scheduled for another issue, the Closing Auction Session was also discussed, with the conversation largely centred on ways to increase participation during the auction window, the report added.

The regulator views higher market participation as central to the successful implementation of the mechanism, and noted that participation had already improved on the second day compared to the first day since it went live. SEBI is of the view that as participation continues to rise, the sharp volatility seen during the auction window is expected to ease. The regulator also said traders should make better use of the indicative price displayed during the auction to place their orders more effectively.

CAS Modelled On Global Exchange Practices

SEBI introduced the Closing Auction Session after studying practices followed by leading global stock exchanges, and believes the mechanism offers long term benefits beyond improved transparency. The regulator, however, acknowledged that the market will need time to adjust before the system fully stabilises, the report said.

The Closing Auction Session came into effect on August 3, replacing the volume weighted average price based method of determining closing prices with an auction style mechanism for stocks that have active futures and options contracts. SEBI has said the change is meant to strengthen price discovery, pool market interest into a single point of liquidity, improve execution of large orders and enhance transparency, given that the closing price feeds into derivatives settlement, index computation and mutual fund NAV calculations.

The shift aligns Indian markets with global practices, with exchanges such as the London Stock Exchange, Euronext, the Singapore Exchange and Nasdaq already using closing auctions to set end of day prices. The rollout is being carried out in phases, with only stocks eligible for futures and options trading covered for now. Other securities will continue under the existing volume weighted average price method until SEBI notifies further changes to the framework.