CAS stays, but derivatives settlement may change, says Sebi chief Tuhin Kanta Pandey after another 1,000-point Sensex swing

Liquidity concerns arising from the introduction of the closing auction session (CAS) are not exclusive to India, as global markets have also experienced reduced liquidity during the early stages of implementation, according to SEBI Chairman Tuhin Kanta Pandey. During a speech at the Global Fintech Fest (GFF), Pandey emphasized that CAS is here to stay, despite the market regulator's upcoming consultation paper on potential adjustments to the derivatives settlement mechanism aimed at addressing liquidity issues.

The chairman noted that while the overall implementation of CAS, MSCI rebalancing, and other initiatives have gone smoothly, a segment of the market has faced challenges due to the dependence of settlement prices on CAS. He acknowledged that several jurisdictions, including the US, Japan, and Hong Kong, have reported liquidity concerns upon the introduction of CAS. Pandey stressed that the proposed regulatory changes are not meant to eliminate CAS but rather to provide temporary solutions to liquidity problems.

Potential solutions being considered include tighter auction price bands, an extended or overlapping derivative session, or the settlement of index derivatives at the volume-weighted average price. At a panel discussion during the GFF, Pandey discussed the role of artificial intelligence (AI) in the regulator's surveillance and risk management efforts. He explained that SEBI is employing AI tools to detect risks more promptly, shifting from reactive to proactive monitoring and enabling near real-time oversight.

Pandey emphasized that while AI can assist regulators in monitoring risks, it should not replace human judgment. He highlighted various initiatives, such as Sudarsan, R(AI)DAR, and the Cybersecurity Audit Compliance Portal (C-SAC), which aid in monitoring social media, intermediary advertisements, and evaluating cybersecurity controls. The comments submitted to these platforms must be in English, in full sentences, and should not be abusive or personal in nature.