CAS and closing price differences: What Sebi chief Tuhin Kanta Pandey said

Sebi chairperson Tuhin Kanta Pandey on Wednesday said the Closing Auction Session (CAS) represents a major market microstructure reform. Responding to concerns over price differences between the end of regular trading and the final closing price, Pandey said CAS was aimed at addressing limitations in the earlier volume-weighted average price (VWAP) methodology.

"CAS is a very big microstructure reform, and we have actually lagged behind. Many of our global counterparts have already done this. Japan did it in 2024, Hong Kong has done it, and it is there in the US, Germany, Europe and Australia," he said.

The Sebi chief said a reliable closing price was important for index products, passive investing and mutual fund net asset values (NAVs).

Explaining the rationale behind the new mechanism, he said the earlier VWAP-based process had limitations that could make the closing price vulnerable to the impact of trades executed towards the end of the regular session.

"If a small trade comes in at the last minute, it disproportionately impacts the price," Pandey said, adding that Sebi had seen such concerns in cases involving practices such as "marking the close", an illegal market manipulation tactic involving trades near the end of a trading session to artificially influence a security's or index's closing price.

Pandey said CAS provides greater visibility into the price discovery process through indicative prices. He added that the random closing time is also an integral part of the mechanism, reducing the scope for last-minute bids to influence the closing outcome.

"CAS is a transparent mechanism. Its pricing is always visible, and what is happening inside it is visible," Pandey said.

Pandey also said Sebi has been engaging with stakeholders and monitoring feedback on the mechanism. "If there is a need to tweak it and improve it, we will also see that," he stated.

"We have to be watchful, but we should be persistent. We should see that everyone understands the market," Pandey added.

He also noted that the difference between Sensex and Nifty levels at the end of regular trading and their final closing values under CAS had moderated from the levels seen in the initial days after its introduction.