Liquidity concerns following the introduction of the closing auction session (CAS) are not unique to India, and global jurisdictions had also faced lower liquidity in the initial phases of implementation, said the Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey on Thursday.
Speaking on the sidelines of the Global Fintech Fest (GFF), Pandey reiterated that CAS was here to stay even as the markets regulator is soon going to issue a consultation paper on some tweaks to the settlement mechanism for derivatives as temporary solutions to the liquid concerns.
“We have had several participants who have absolutely praised that implementation of CAS, that MSCI rebalancing and all have gone off very well. Technically the whole thing went off well. Now, there is a certain segment of the market that gets impacted because of the way we kept the settlement price as completely dependent,” he said.
“Many market participants have told us about the rollout of CAS in all jurisdictions including the US, Japan, Hong Kong, and they have told us that initially, everywhere, wherever the CAS was brought in, liquidity was always an issue and it builds up over time. The issue is that can we just keep on waiting and holding, or we can have some temporary solutions to the issue,” he said.
Pandey clarified that the proposed changes, expected soon, are not aimed at withdrawing CAS. “It is not in relation to CAS. It is the determination of a closing price based on CAS,” he said.
Market participants expect tighter auction price bands, an extended or overlapping derivative session, or settlement of index derivatives on the volume-weighted average price.
Speaking at a panel at the GFF, Pandey detailed the use of artificial intelligence (AI) tools by the market regulator in surveillance and safeguards.
“AI can help regulators. We are using certain AI tools, they can help us see risks earlier but it should inform regulatory judgment, not replace it. What we can do with AI is from periodic monitoring we can move to proactive monitoring. Supervision can be more off-site than on-site, and near real-time rather than periodic,” he said.
He said that initiatives and tools by the regulator such as Sudarsan, R(AI)DAR, and Cybersecurity Audit Compliance Portal (C-SAC) are helping the regulator monitor social media and intermediary advertisements, and analyse cybersecurity controls.