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Sebi chief defends closing auction as fund participation climbs
Sebi chief Tuhin Kanta Pandey says mutual fund participation in closing auction climbed to 20-25% from 5-7% after rocky rollout; fund houses seek T+2 settlement and stock lending improvements.
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India's securities regulator defended its new closing auction system on Wednesday, saying the industry needs time to adjust after the rollout triggered sharp price swings in stocks.
Sebi Chairman Tuhin Kanta Pandey said mutual fund participation in the closing auction has climbed to 20-25% from 5-7% in the first week. "Whenever there is a change, it takes time for the whole industry to understand," he said at a press conference.
The closing auction system, introduced August 3, collects buy and sell orders after the regular session ends and matches them at a single price that clears the maximum volume. Some fund houses stayed out initially, uncertain how the closing price would behave. Sharp movements in stock prices during the first few days raised questions about the reliability of the new benchmark.
Pandey said the regulator is gathering input from stakeholders. "If there is a need to tweak and improve it, then we will look into that also," he said. He stressed that the old system carried a risk of manipulation in the final minutes of trading, with a disproportionate impact from last-second orders. The new system removes that vulnerability and reduces tracking error for passive funds, he said.
India was late to adopt the mechanism compared with markets like the U.S., Germany, Japan, Hong Kong and Australia, Pandey noted. He said Sebi has not observed any manipulation in the new system but is analyzing data.