Sebi Chief Confirms CAS Will Remain Amid Market Volatility
Sebi's Tuhin Kanta Pandey reassures traders that the Closing Auction Session (CAS) is not going anywhere, despite concerns over market swings.
Sebi confirms the continuation of the Closing Auction Session (CAS).
Recent market volatility saw the Sensex fluctuate over 1,000 points on expiry day.
Sebi is reviewing the methodology for derivative settlement prices due to feedback from market participants.
In a recent statement, Tuhin Kanta Pandey, the chairman of the Securities and Exchange Board of India (Sebi), affirmed that the Closing Auction Session (CAS) will remain in place despite ongoing concerns from traders regarding significant price fluctuations on expiry days. This announcement follows a day when the Sensex experienced a dramatic swing, dropping over 1,000 points before recovering to close just 138 points higher.
The CAS was introduced to enhance price discovery and align Indian markets with global practices. However, traders have raised alarms about the volatility it introduces, particularly on expiry days when the closing auction price can significantly influence derivative contracts. Pandey noted that the recent rebalancing by global index provider MSCI was successful under the CAS framework, indicating its operational effectiveness.
On the day of the announcement, the Sensex's volatility was evident, with a recovery from a low of over 1,000 points during the trading session. The closing auction session witnessed substantial institutional trading, contributing to a turnover of approximately Rs 39,718 crore, which accounted for nearly 22% of the total cash market turnover. This activity is attributed to passive funds adjusting their portfolios in response to MSCI index changes.
Despite the operational success of CAS, the impact of its volatility on the Sensex and Nifty indices remains a significant concern for traders. The sharp price movements can lead to unexpected gains or losses, particularly affecting options traders. Critics argue that the current system requires stronger safeguards to mitigate these risks, as large orders during the auction can disproportionately affect prices.
Looking ahead, Sebi has initiated a review of how derivative settlement prices are determined in light of the CAS implementation. The regulator is expected to release a consultation paper addressing whether the current CAS-discovered closing price should continue to be used for settlements or if an alternative method is necessary to minimize expiry-day shocks. This review process will involve extensive consultations with various market stakeholders, including exchanges, brokers, and institutional investors.
