2 weeks ago
Sebi Reviewing New Auction System Amid Liquidity, Trading Concerns
India has a big stock market, and the group that watches over it is called Sebi.
Recently, Sebi introduced a new way to decide the final price of stocks at the end of each trading day.
This new method is called a closing auction.
Sebi created it so that stock prices would be fair and nobody could cheat.
But some people who trade stocks found the new system confusing.
Fast-trading companies complained that they could not borrow stocks, which made it hard for them to join the auction.
Brokers who buy stocks for big foreign funds worried that the system might struggle on special rebalancing days later this month.
Sebi says it is listening and is open to changing the system to make it work better.
The chairman told everyone that the regulator wants to gather ideas from the people who use it.
Sebi has accelerated discussions with high-frequency trading firms and other market players over its new closing auction system, according to Bloomberg News.
The regulator held meetings this week with market makers, domestic mutual fund managers, and stock brokers to gather feedback on the mechanism launched August 3.
Sebi chairman Tuhin Kanta Pandey said the regulator is open to tweaking the system and is collecting input from market players.
Some high-frequency trading firms said they could not borrow stocks in India's developing securities-lending market, limiting their participation in the auction.
Some brokers suggested reverting to the previous mechanism on passive fund rebalancing days until liquidity improves, citing concerns ahead of MSCI Inc.'s quarterly changes later this month.
- Who
- The Securities and Exchange Board of India (Sebi), its chairman Tuhin Kanta Pandey, and market participants including high-frequency trading firms, market makers, domestic mutual fund managers, and stock brokers.
- What
- Sebi is reviewing its new stock closing auction system, launched on August 3, amid liquidity and trading participation concerns.
- Where
- India.
- When
- The review talks took place this week, with Sebi's chairman speaking on Wednesday; the system was launched on August 3.
- Why
- The system, aimed at improving price discovery and preventing market manipulation, has led to confusion, limited participation due to securities-lending issues, and worries ahead of MSCI quarterly rebalancing.
Backers of the new auction system
Market players seeking adjustments
Closing auction mechanism
Backers of the new auction system
The new system is designed to improve price discovery and prevent market manipulation.
Market players seeking adjustments
The system has led to confusion and created liquidity and participation problems for traders.
Path forward on rebalancing days
Backers of the new auction system
Sebi is open to tweaking the mechanism and is gathering feedback from market players.
Market players seeking adjustments
Some brokers suggest temporarily reverting to the previous mechanism on passive fund rebalancing days until liquidity improves.
Key facts
- Regulator
- Securities and Exchange Board of India (Sebi)
- Sebi Chairman
- Tuhin Kanta Pandey
- New System
- Closing auction mechanism for determining stock closing prices
- Launch Date
- August 3
- Stated Purpose
- Improve price discovery and prevent market manipulation
- Key Concern
- High-frequency trading firms unable to borrow stocks in India's securities-lending market
- Upcoming Challenge
- MSCI Inc. quarterly portfolio rebalancing later this month
- Reporting Source
- Bloomberg News, as reported by Telegraph India
Sources
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