SEBI Proposes Post-Market Call Auction Session for Closing Price to Aid Passive Funds

The Securities and Exchange Board of India (SEBI) has proposed introducing a 15-minute post-market Call Auction Session (CAS) to determine the closing price of stocks in the equity cash market. Initially limited to derivative stocks for liquidity, the move aims to replace the existing VWAP system and align with global standards.

SEBI’s Proposal for a Call Auction Session

In its consultation paper, SEBI proposed a significant change to the closing price determination mechanism in India’s equity cash market. The Call Auction Session (CAS) would replace the existing Volume Weighted Average Price (VWAP) methodology, offering a more robust and globally recognised framework.

The CAS will initially focus on stocks in the derivatives segment, ensuring that only stocks with adequate liquidity are included. Over time, the mechanism will extend to other stocks in a phased manner, facilitating a smoother transition.

CAS Design and Timings

The CAS will operate as a separate session held between 3:30 pm and 3:45 pm after regular trading hours. During this session, the closing price for each eligible stock will be determined through a call auction process. This method involves matching buy and sell orders at a single price that maximises trade volume, thereby enhancing transparency and reducing volatility in closing prices.

Global Alignment and Passive Fund Considerations

SEBI highlighted that many major markets, such as the US and Europe, already employ a closing auction mechanism. The proposed CAS aligns India’s equity markets with global practices, potentially making the market more attractive to international investors. Additionally, the move addresses requests from passive funds, which rely on accurate and representative closing prices for their operations.

Public Consultation and Feedback

To ensure an inclusive approach, SEBI has invited public comments on the proposal. The consultation paper will be available for comments on the SEBI website for 21 days from the date of issuance.

Comments may be sent via an online web-based platform, with the last date for submission being December 26, 2024. The feedback will help refine the design and implementation process, ensuring that the CAS serves market participants effectively.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.