SEBI Finds No Manipulation In New Closing Auction System: Chairman Tuhin Kanta Pandey

The Securities and Exchange Board of India (SEBI) has not found any evidence of manipulation in the newly introduced Closing Auction Session (CAS), which determines closing prices of stocks, Chairman Tuhin Kanta Pandey said on August 12.

Pandey said the regulator is continuously analysing market data and gathering feedback from stakeholders after the implementation of the new mechanism. He added that SEBI may make changes to the framework if necessary.

The closing auction system is considered a major market structure reform aimed at aligning Indian markets with global practices. Speaking at an event in Mumbai, Pandey said the regulator is evaluating suggestions to improve participation in the new system.

SEBI monitors closing auction mechanism after rollout

Pandey said SEBI has been reviewing trading data following the transition to the new closing price mechanism. While the regulator has not identified manipulation so far, it continues to monitor activity and assess feedback from investors, brokers and other market participants.

He said the discrepancies seen on the initial days of implementation, including those observed on August 3, have reduced significantly in subsequent sessions for both the Sensex and Nifty.

According to Pandey, the main challenge with CAS is not transparency but familiarity and participation. Market participants need time to understand the process, while trading algorithms and systems designed around the earlier methodology also require adjustments.

Several brokers have started displaying indicative prices on their platforms, and more large brokers are expected to provide similar information through their applications. SEBI believes greater availability of such information will encourage wider participation.

Closing auction replaces VWAP-based closing system

The Closing Auction Session is a separate 20-minute trading period introduced recently, during which exchanges collect buy and sell orders to determine the closing price at a level where maximum trading volume can be executed.

The mechanism replaced the earlier method, which calculated the closing price based on the volume-weighted average price (VWAP) of trades during the final 30 minutes of regular market hours.

Pandey said the earlier system had limitations because a small trade near the market close could influence the closing price disproportionately. He referred to practices such as “marking the close”, where traders attempt to manipulate closing prices.

He said the new system is particularly important for index-based and passive investments, as well as mutual fund net asset value calculations, where a reliable reference price is required.

Pandey noted that several global markets, including Japan, Hong Kong, the US, Germany and Australia, already use closing auction mechanisms. He said India had been behind in adopting such a market structure reform.

The introduction of CAS has received mixed reactions from market participants. While regulators believe it will improve transparency and execution efficiency, some traders have raised concerns over lower participation and possible losses during the transition period.

SEBI said it will continue consulting stakeholders and reviewing market data before deciding whether any modifications to the system are required.