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Sebi closing auction mechanism distorts ETF indicative pricing
Sebi’s 3 August closing auction session covers just 213 derivative-traded stocks, leaving other ETF holdings valued with VWAP and skewing iNAV between 3:15pm and 3:30pm.
Sebi’s new single-price closing auction session, intended to replace a final volume-weighted average price for some stocks, is causing pricing mismatches for exchange-traded funds, according to LiveMint Markets. The regulator’s Closing Auction Session, or CAS, sets one equilibrium closing price based on a maximum matching of pooled orders, with auction orders placed within a ±3.0% band around a volume-weighted reference price derived from trading between 3:00pm and 3:15pm. However, on 3 August, CAS currently covers only 213 derivative-traded stocks, which stop continuous trading at 3:15pm while other stocks continue to trade until 3:30pm. For ETFs that hold shares across both groups, the difference in the underlying prices used can distort the indicative net asset value, or iNAV. LiveMint Markets reports that iNAV, which must be updated with a maximum 15-second lag from underlying market moves for equity ETFs, can become inaccurate, creating a gap between when investors expect ETF pricing updates and when the underlying holdings’ closing prices are properly aligned. The problem is illustrated in the SBI Nifty Smallcap ETF, where only three of the top 10 holdings are eligible for CAS, while seven are still valued using VWAP. A mutual fund official, speaking anonymously, said iNAV is important for transparent pricing every few seconds and that investors may stop trading ETFs between 3:15pm and 3:30pm if pricing is not accurate, with another mutual fund executive saying the issue should persist until all stocks are brought under CAS. LiveMint Markets also cited that ETFs had amassed ₹ 11.71 trillion in assets as of July 2026, up 28.0% year-on-year.