CAS transition to achieve cross-market consistency, boost price discovery mechanism: SEBI

Mumbai, Aug 7 (IANS) Amid concerns over the ‘mismatch’ in stock prices on domestic indices due to the new Closing Auction Session (CAS) system, the Securities and Exchange Board of India (SEBI) has said that the strategic transition “marks a significant step in achieving cross-market consistency and enhancing the robustness of India’s price discovery mechanism”.

In its annual report, the markets regulator said that to align closing price discovery with international standards, a dedicated 20-minute closing auction session for the equity cash segment was introduced and implemented in a phased manner, starting August 3, 2026.

“In order to align the determination of closing prices of stocks in equity cash segment with that in other major jurisdictions globally and to provide fair, equal and transparent access to all categories of investors, a framework for CAS has been introduced,” said SEBI in its report.

The markets regulator said that the Indian capital markets have witnessed a transformative shift toward passive investing, with passive funds now accounting for approximately 30 per cent of FPI equity AUM and 28 per cent of domestic mutual fund equity AUM (as of March 31, 2026).

This growth, coupled with the rising weight of Indian stocks in global indices like MSCI and FTSE, where they command weights between 12 per cent and 30 per cent, has intensified the demand for precise execution at closing prices to minimise tracking errors.

“Historically, India’s reliance on the volume weighted average price (VWAP) methodology often led to intraday price swings and volatility, particularly during index rebalancing, as the market struggled to absorb large institutional flows in real-time,” SEBI explained.

To address these challenges and align with international best practices seen in markets like the NYSE, LSE, and HKEX, SEBI has introduced the closing auction session (CAS).

Unlike the VWAP approach, which averages trades executed during the last 30 minutes of the continuous trading session in the cash segment, CAS concentrates liquidity into a single and transparent auction.

By allowing all buy and sell interests to interact simultaneously, the mechanism facilitates the formation of a single equilibrium price based on the maximum matching of supply and demand. This process ensures lower price disruption and greater execution certainty, providing a more stable and reliable closing price even during periods of high trading volume,” SEBI report noted.

Meanwhile, the sharp divergence in benchmark and stock closing prices following the implementation of the CAS triggered fresh debate among market participants, with investors questioning the reliability of end-of-day price discovery.

The debate intensified after trading sessions under the new framework witnessed sharp divergences in official closing prices, leaving many investors confused.

–IANS

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