India’s securities regulator is contemplating modifications to its recently introduced closing auction system after industry feedback and early signs of market strain, just months after its rollout aimed at improving price discovery and market integrity.
India’s markets regulator is weighing changes to its new closing auction system after meeting trading firms, mutual fund managers and brokers this week to hear concerns about the rollout, which began on 3 August. SEBI chairman Tuhin Kanta Pandey said at a public event on Wednesday that the watchdog is open to refinements and is actively taking feedback from market participants.
The closing auction session was introduced to replace the earlier volume-weighted average price method used to set end-of-day share prices in the cash equity market. According to SEBI’s January announcement and subsequent circulars, the new mechanism runs from 3:15 pm to 3:35 pm for eligible stocks, with order entry, random close and final matching phases. The regulator says the aim is to improve price discovery, reduce the scope for manipulation and bring India’s market structure closer to international practice.
The early response has been mixed. Some high-frequency trading firms have complained that India’s still-thin securities lending market has made it harder to borrow shares for auction participation, while some brokers have suggested temporarily restoring the old closing method on days when passive funds rebalance their portfolios. Business Standard reported that SEBI had previously considered phased changes and even discussed short-term borrowing arrangements for passive investors during such rebalancing periods.
Market participants are now looking ahead to a bigger test later this month, when global index-tracking funds are expected to adjust holdings after MSCI’s quarterly changes. Signs of strain are already visible: according to the figures cited in the lead report, average turnover in the auction window has fallen 40% versus the final 15 minutes under the old system, while index options volume dropped 27% to 268 million contracts across the 4 and 11 August settlement days from July’s weekly average. That drop suggests the regulator may face pressure to fine-tune the system before it is fully embedded.
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