On Thursday, India’s markets regulator, Sebi, suggested a new way to decide the closing prices of stocks in the equity cash market. Currently, the closing price is figured out using the Volume Weighted Average Price (VWAP) over the last 30 minutes of trading. This method helps find a fair price but doesn’t let investors buy or sell stocks at that exact closing price.
The new idea, called the Close Auction Session (CAS), aims to make prices more stable during the busy closing moments of the market, especially on important days like index rebalancing and when derivatives expire. It will help big investors complete their trades at the closing price and make tracking indices easier for passive funds, which are investment funds that follow the performance of an index.
Sebi pointed out that as more Indian stocks join big international indices, investors face challenges in keeping track of these stocks. The current method of using the last half-hour’s average price can lead to differences that hurt investors.
To solve this, Sebi wants to replace VWAP with CAS as a call-auction system, similar to what many countries already use. The new method would be gradually introduced, starting with stocks that have derivatives available.
Sebi suggests that this auction session should take 15 minutes, from 3:30 PM to 3:45 PM, and split into different parts. These include figuring out a reference price, accepting orders, a no-cancellation period, and finally confirming and matching trades. Alternatively, Sebi could also hold it in three parts, without a no-cancellation phase, similar to how pre-open sessions work.
Sebi is looking for public feedback on these proposals until December 26.
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