SEBI: No Manipulation in New Closing Auction Session

SEBI Chairman Tuhin Kanta Pandey recently confirmed that no manipulation has been observed in the new Closing Auction Session (CAS) thus far. This assessment comes as market participants continue to adjust to the new price-discovery mechanism, with data remaining under continuous monitoring.

Pandey described CAS as a significant micro-structure reform, specifically designed to enhance the reliability of closing prices. The new system aims to rectify deficiencies present in the previous Volume Weighted Average Price (VWAP)-based mechanism.

Key Shifts in Market Participation

The implementation of CAS has notably influenced participation dynamics among various market segments. Mutual fund engagement in the session has seen a substantial increase, reflecting growing confidence in the new framework.

• Mutual fund participation in CAS rose from an earlier 5-7% to approximately 20-25%.
• Proprietary traders have shown increased activity, particularly on expiry days.

SEBI remains committed to engaging with all market participants and actively welcomes suggestions, including those shared on social media platforms.

Addressing Retail Investor Losses

Regarding concerns over retail investor losses, SEBI plans to release a detailed paper within the next 8-10 days. This document will provide a granular understanding of the participants involved in incurring losses.

Pandey acknowledged that both retail and sophisticated investors face inherent market risks leading to losses. However, SEBI is particularly concerned about substantial losses investors can incur from options trading on expiry days, despite a common perception of simplicity.

The CAS Framework and Its Importance

The new CAS framework is crucial for passive investing and mutual funds, as it provides a reliable reference price. This price is essential for index-based transactions and for determining mutual fund Net Asset Values (NAVs).

Pandey clarified that CAS is not a “black box,” as indicative prices are made available throughout the session. Discrepancies in closing prices for both the Sensex and Nifty, previously observed on August 3, have significantly narrowed in subsequent sessions.

The effective functioning of the CAS system ultimately depends on greater participation and heightened awareness among market participants as they continue to adapt to its operational nuances.