3 hrs ago
SEBI Keeps Closing Auction Session, Reworks Derivatives Settlement Method
India’s market regulator has decided to keep a new end-of-day trading process called the Closing Auction Session.
This process helps determine closing prices for stocks.
SEBI said it worked well during a recent MSCI rebalancing.
However, some traders are concerned about lower liquidity, meaning fewer buyers and sellers may be available.
SEBI is therefore reviewing how derivatives prices are settled on expiry days.
The regulator does not plan to cancel CAS.
It says liquidity may improve as investors become more familiar with the system.
SEBI also plans to use artificial intelligence to spot market risks earlier, while keeping human regulators responsible for decisions.
SEBI Chairman Tuhin Kanta Pandey said the Closing Auction Session will remain in place.
The regulator is reviewing how futures and options settlement prices are determined on expiry days.
SEBI said CAS worked smoothly during the recent MSCI rebalancing, but liquidity remains a concern.
Pandey said liquidity challenges were also reported when similar systems were introduced in other markets.
SEBI is developing greater use of artificial intelligence for proactive, near-real-time market supervision.
- Who
- The Securities and Exchange Board of India, led by Chairman Tuhin Kanta Pandey, and market participants.
- What
- SEBI will retain the Closing Auction Session while reviewing the method used to determine derivatives settlement prices.
- Where
- The announcement was made on the sidelines of the Global Fintech Fest in Mumbai, India.
- When
- The announcement was made on Thursday; SEBI had also monitored CAS during its first month.
- Why
- SEBI said CAS performed smoothly technically but has created liquidity concerns and affected some market participants through the current settlement-price method.
SEBI’s Position
Market Participants’ Concerns
Keeping the Closing Auction Session
SEBI’s Position
SEBI says CAS is technically effective, worked well during MSCI rebalancing, and will remain in place.
Market Participants’ Concerns
Some market participants have raised concerns about liquidity and the effects of the current settlement-price mechanism.
Derivatives settlement prices
SEBI’s Position
SEBI is reviewing and reworking the methodology rather than abandoning CAS.
Market Participants’ Concerns
Affected participants are concerned that making the settlement price completely dependent on the current method can influence expiry-day trading and liquidity.
Liquidity outlook
SEBI’s Position
SEBI says liquidity problems occurred initially in other jurisdictions and can build over time.
Market Participants’ Concerns
Market participants remain concerned about the immediate liquidity challenges associated with CAS.
Key facts
- Regulator
- Securities and Exchange Board of India (SEBI)
- Chairman
- Tuhin Kanta Pandey
- Policy decision
- The Closing Auction Session will remain in place.
- Review underway
- SEBI is reworking the methodology for determining derivatives settlement prices on expiry days.
- Main concern
- Liquidity challenges following the introduction of CAS.
- Successful implementation
- SEBI said CAS worked smoothly during the recent MSCI rebalancing.
- Technology initiative
- SEBI is working to implement an artificial-intelligence supervisory toolkit developed by IOSCO.
Quotes
Tuhin Kanta Pandey
SEBI Chairman
“AI can help regulators. We are using certain AI tools—they can help us see risks earlier, but they should inform regulatory judgment, not replace it. What we can do with AI is, from periodic monitoring, we can move to proactive monitoring. Supervision can be more off-site than on-site and near real-time rather than periodic.”
livemint.com
“CAS is here to stay…the only question is of liquidity. Many market participants have told us about the rollout of CAS in all jurisdictions, including the US, Japan, Hong Kong, and they have told us that initially, everywhere, wherever CAS was brought in, liquidity was always an issue. It builds up over time.”
livemint.com
Sources
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