SEBI calls for close auction session in equity markets

New Delhi: Market regulator Sebi has proposed to introduce a Close Auction Session (CAS) framework in the country to determine the closing price of stocks in the equity cash market. Currently, the closing price of stocks in India is determined using the volume weighted average price (VWAP) of the last 30 minutes of the trading day. While this mechanism facilitates determination of a fair market closing price, it does not allow trading at the exact closing price. The introduction of CAS will reduce price volatility during market close, especially on index rebalancing and derivative expiry days, ensure better execution of large orders at closing prices and reduce tracking gaps for passive funds, thereby enhancing alignment with index performance. In its consultation paper, Sebi noted that passive fund investments are growing globally and in India. As the weightage of Indian stocks increases in major international indices, challenges arise for passive funds to track the index. It further said that the current system of determining closing price using volume weighted average price of the last half-hour in India may lead to tracking differences for passive funds, which may ultimately impact investors.