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Sebi chief says CAS liquidity issues fade as participation grows
Sebi is reviewing the CAS framework after concerns about thin liquidity and expiry-day price discovery in India’s derivatives market.
India’s Securities and Exchange Board of India is considering tweaks to its closing auction session framework after concerns that CAS has hurt liquidity and price discovery for derivatives on expiry days, according to comments by Sebi chief Tuhin Kanta Pandey reported by LiveMint Markets.
Pandey said liquidity problems seen in India when CAS was rolled out were not unique, noting that other markets including the US, Japan, and Hong Kong also faced low liquidity at first, but that it recovered over time. He added that market participants told Sebi that liquidity built up as participation increased.
Sebi is examining how settlement prices for derivative contracts are determined following industry feedback, including the impact of CAS on expiry-day pricing. On 3 September, Sebi said it would issue a consultation paper to review the settlement-price framework, after CAS was introduced on 3 August.
Under the current approach, orders can be placed between 3:20 pm and 3:30 pm, with closing prices based on the maximum bids and offers between 3:28 pm and 3:30 pm, while cash eligible stocks close at 3:15 pm and derivatives trading continues until 3:40 pm. LiveMint Markets also cited earlier episodes where abrupt price moves occurred during the auction session, including a sharp Sensex drop at the start of the CAS session on 3 September before it recovered.
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