Sebi Proposes Close Auction Session for Stock Market Stability

Sebi proposed implementing a Close Auction Session (CAS) in India's equity cash market to refine stock closing price determination. Designed to minimize volatility and improve execution for passive funds, CAS would replace the existing VWAP system, offering a phased introduction initially targeting stocks with sufficient liquidity.

The Securities and Exchange Board of India (Sebi) has taken a significant step towards stabilizing the equity cash market by proposing a Close Auction Session (CAS) framework. This new system aims to refine the process of determining the closing price of stocks, which currently relies on the Volume Weighted Average Price (VWAP) of the last 30 minutes of trading.

According to Sebi's consultation paper, the CAS would not only minimize price volatility during market close but also enhance the execution of large orders, especially on index rebalancing and derivative expiry days. This change is crucial as passive fund investing continues to grow in India, challenging the current system's ability to accurately track indices, impacting investors.

The proposed CAS would initially be introduced for stocks with derivatives to ensure adequate liquidity. Sebi has suggested implementing a 15-minute session split into either four or three distinct periods, focusing on reference price determination, order input, and concluding with trade confirmation. The public can provide their comments on this proposal until December 26.

(With inputs from agencies.)