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Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey on Wednesday said the discrepancies seen after the introduction of the new Closing Auction Session (CAS) on August 3 have significantly narrowed, as the market regulator continues to monitor the new system and gather feedback from stakeholders.
CAS was introduced on August 3 as a new mechanism for determining closing prices of eligible stocks. The rollout initially led to concerns among market participants over differences between prices seen before the auction and the final closing prices, as well as divergence between the Nifty and Sensex. Pandey said the regulator has been closely monitoring the performance of the new mechanism and has seen an improvement in the discrepancies observed during the initial days. "You can see that the discrepancies observed on August 3rd have significantly narrowed compared to more recent figures--both for the Sensex and the Nifty," Pandey said. The SEBI Chairman said the regulator is consulting various stakeholders and monitoring feedback on CAS, including discussions taking place on social media. "SEBI is consulting with various stakeholders, gathering input, and monitoring feedback--including discussions on social media. If any adjustments or improvements are needed, we will certainly consider them," he said. Pandey described CAS as a major market-structure reform and said the system was introduced to address limitations in the earlier VWAP-based method of determining closing prices. According to Pandey, the previous system could allow a small trade close to the end of trading to have a disproportionate impact on the closing price, creating potential for manipulation. "The previous VWAP-based system had a flaw: a single small trade occurring near the close could disproportionately impact the price, creating significant potential for manipulation," he said. He also referred to the practice known as "marking the close", which involves attempts to influence prices near the market close. Pandey said the new system is aimed at providing a specific reference price, which is important for index-based and passive investing as well as for determining mutual fund net asset values (NAVs). He said the CAS mechanism is not a "black box" because indicative prices are available during the auction. The system consolidates bids and displays indicative prices based on the level at which the maximum volume of orders can be matched. Pandey also highlighted the random closing mechanism, which is designed to prevent a last-minute trade from having an undue influence on the final price. The SEBI chief said the focus now is on increasing participation in the closing auction and helping investors and brokers understand the new mechanism. He said several brokers have already started displaying indicative prices on their web platforms, while more major brokers are expected to integrate the feature into their mobile applications. Pandey said the fundamental objective of CAS is to increase participation and establish a transparent and reliable closing price. "The fundamental objective is to boost participation in the CAS. CAS is a transparent market where pricing is always visible, and the underlying activity can be tracked; ultimately, it establishes a specific price," he said. The regulator's latest comments come as market participants continue to adjust to the new closing-price mechanism. SEBI has indicated that it will consider changes if feedback and market data show that improvements are required. (ANI)
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