CAS stays: SEBI boss hears pain, refuses to retreat

Sebi Chairman Tuhin Kanta Pandey has affirmed that the Closing Auction Session (CAS) will remain in place, despite receiving feedback from traders and market participants regarding their concerns about the new system. The regulator is currently examining the "flaws" in CAS's implementation and looking for ways to rectify them. These concerns primarily revolve around outdated systems that have yet to be updated to accommodate the new closing auction framework.

Pandey stated that they are in discussions with market participants to address these issues and anticipate sharing their findings soon.

However, Pandey also emphasized that there are no issues concerning tracking errors in CAS. The announcement of CAS led to significant price fluctuations in the final minutes of trading, which raised concerns among brokers, traders, and fund managers. Launched on August 3, CAS is employed to ascertain the official closing price of stocks in the futures and options segment.

Unlike the previous method, which relied on the volume-weighted average price during the final 30 minutes of continuous trading, CAS introduced a separate auction window, aligning India's closing price discovery process closer to global market practices.

Despite the smooth transition, early challenges emerged as traders noted unusual movements in Nifty stocks during the auction window and discrepancies between major indices. Reuters reported that the new auction system resulted in sharp equity price movements during the final minutes of trading, creating difficulties for brokers, exchanges, and fund managers.

Sebi has not yet detected any evidence of manipulation in CAS, and Pandey mentioned that the regulator is continuously monitoring the data. This indicates that the issues are centered on the implementation of CAS rather than the auction mechanism itself.

The primary concern among market participants is that certain trading and risk-management systems were built around the old closing-price mechanism and have not fully adapted to the auction process. This has led to confusion regarding order placement, square-off timing, index movements, and derivative expiry-related positions. Bernstein analysts suggested that index-options activity might face a near-term setback due to CAS.

The brokerage mentioned that investor discussions have focused on the potential impact on volumes, with their analysis indicating that volumes in the last 15 minutes thinned to 1.6% to 2.3% of daily turnover on the National Stock Exchange (NSE), compared to a historical share of 10.1%. The disruption has also angered retail traders, with some calling for a boycott and declaring a "No Trade Day" in protest against CAS.