2 hrs ago
India’s Auction Revamp Could Help Brokers, Pressure Market Makers
India’s market regulator wants to change how the day’s final stock prices are set.
The current closing auction system has caused unusually large price swings.
The regulator suggested combining regular trading prices with a short auction period.
It also suggested keeping the older pricing method for one year before making the change.
These ideas could make closing prices easier to predict.
Stock exchanges and brokers might benefit if investors regain confidence.
Market makers could face more restrictions on cancelling orders.
This might increase their risk if prices change quickly.
SEBI is asking market participants to send feedback by October 3.
SEBI proposed changing the closing auction system after volatile end-of-day price moves.
One option would blend a 30-minute VWAP with a 10-minute auction window.
Another option would retain the existing VWAP method for one year before blending.
Exchanges and brokers could benefit from more predictable closing prices and renewed trading confidence.
Market makers may face limits on cancelling orders when auction prices move more than 1%.
- Who
- The Securities and Exchange Board of India, stock exchanges, brokers, and market makers.
- What
- SEBI proposed a major revision to India’s closing auction and settlement-price mechanism.
- Where
- India’s equity and derivatives markets, including the National Stock Exchange of India and BSE.
- When
- The current system was introduced on August 3; feedback on the proposals is due by October 3.
- Why
- The revamp aims to reduce volatile end-of-day price moves, improve price discovery, and restore market confidence.
Exchanges and Brokers
Market Makers
Impact of the pricing changes
Exchanges and Brokers
A greater weighting for regular-session VWAP could make closing prices more predictable, restore confidence, and encourage trading, benefiting exchanges and brokers.
Market Makers
Restrictions on cancelling orders during the auction could leave market makers with outdated orders and increase their risk of losses when prices move.
Order-cancellation rules
Exchanges and Brokers
Limiting rapid order cancellations could make displayed orders more meaningful and reduce attempts to influence closing prices.
Market Makers
Market makers may become more cautious about displaying liquidity; Ravi Varanasi said a short no-cancellation period before matching could be a better approach.
Key facts
- Regulator
- Securities and Exchange Board of India (SEBI)
- Current system introduced
- August 3
- Proposed auction window
- 10 minutes
- Proposed regular-session measure
- 30-minute volume-weighted average price
- Feedback deadline
- October 3
- Potential beneficiaries
- Stock exchanges, brokers, and capital-market companies
- Potentially affected group
- Market makers
Quotes
Kruti Shah
Quantitative analyst at Equirus Securities
“The proposals are broadly positive for the market infrastructure ecosystem”
livemint.com
Sources
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