SEBI comes up with consultation paper on Introducing Close Auction Session

SEBI has come up with a consultation paper on Introducing Close Auction Session or CAS in Equity Cash segment. It noted that over the years, passive fund investing has witnessed growing interest both globally and in India. Further, with steady growth of the economy and capital markets, the weightage of Indian stocks in major international indices has grown steadily over time. Since the Indian securities market ecosystem does not currently support execution at closing price, there is scope for index tracking differences amongst passive funds. It can be argued that the risk of such tracking differences in replicating the index is ultimately borne by the investors in these passive funds. Given this context, some of the major passive funds tracking international indices have suggested the need to introduce a closing auction mechanism in India to determine the closing price of stocks in the equity cash market. It is also noted that major jurisdictions around the world have a closing auction mechanism. SEBI proposed that CAS may be introduced as a call-auction mechanism for determining closing price of each stock in equity cash segment. It noted that while the said mechanism (VWAP) facilitates determination of a fair market closing price based on trading interest in stocks spread through the last half an hour of the trading day, it does not enable the interested buyers and sellers to trade exactly at the Close Price of the day.

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