India’s securities regulator confirms the integrity of the new closing auction mechanism designed to enhance transparency and align with global standards, as participation from mutual funds increases despite concerns over liquidity during the phased rollout.
India’s markets regulator says it has not found evidence of manipulation in the new closing auction mechanism that now sets the final trading price of listed shares, even as it works to encourage wider use of the system. Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India, said in Mumbai that the reform is intended to bring India closer to global market practice and that any new framework needs time to settle in.
The closing auction session began on August 3 in a phased rollout, according to SEBI notices reported by Indian financial media. The 20-minute session replaces the old method of using the volume-weighted average of trades in the final half-hour of regular trading. Regulators have said the change is meant to make closing prices more transparent, improve execution for large orders and reduce distortions that can affect index and derivative settlement.
Pandey said participation has started to improve, especially from mutual funds. He said their share in the auction rose from about 5% to 6% on the first day to roughly 20% to 25% in the days that followed. He also argued that the reform was needed to cut tracking error for passive funds, which aim to mirror benchmark indices as closely as possible.
Still, the shift has drawn market concern, with some participants worried about thin liquidity and possible losses during the transition. SEBI has previously outlined a phased introduction that will extend to other trading segments later, including changes to the pre-open auction session from September 7. Earlier reporting by Business Standard and Moneycontrol said the regulator had proposed the framework months before launch, while The Times of India noted that the move was designed to align Indian markets more closely with overseas practice and improve price discovery at the close.
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