While stockbrokers and market participants have largely welcomed SEBI’s decision to revert to the earlier 30-minute volume-weighted average price (VWAP) based settlement methodology, many have questioned why the regulator chose to review the closing auction session (CAS) framework barely eight months after introducing it, arguing that frequent policy reversals could dent market credibility.
Policy reversal raises questions over timing
A Mumbai-based broker raised concerns about the timing, coming just ahead of what is expected to be India’s largest IPO. “First SEBI was in denial mode, saying all was well in the cash market. Then it realised that approach was not working and decided to revisit the framework. It now appears that the regulator has effectively postponed the experiment for a year. Such reversals spoil the image of the market and raise questions about why this circular has been issued at this particular point in time,” the veteran said.
Another Mumbai-based trader, who did not wish to be named, said many market participants would welcome a return to the old VWAP-based system. “The earlier VWAP system helped proprietary desks make money from auctions. The CAS framework linked derivatives and the cash market, which is how markets ideally should function,” he said.
Traders question readiness of CAS framework
A market veteran noted that CAS was introduced when trading activity had already been affected by the RBI’s move requiring 100 per cent margins on certain volumes. “Volumes had already fallen significantly. Then a system was introduced where liquidity was not necessarily required because market participants could place and cancel non-serious orders. CAS would work better in a much more liquid market,” he said.
Several traders also questioned whether the regulator had given the framework sufficient time to mature before altering it. “It was too soon,” said one Mumbai-based trader, echoing a broader sentiment across the broking community.
Concerns over market integrity and manipulation
CAS was introduced to make India a more attractive investment destination by simplifying how exchange-traded funds (ETFs) track benchmark indices. However, market participants argue that its impact went beyond that objective.
“What happened was that some participants were able to game the system and profit from it while damaging market integrity,” said Arun Kejriwal, a market veteran. He added that the framework could have worked better if stronger safeguards had been built in to prevent manipulation during the auction window.
The latest circular, which reinstates the 30-minute VWAP as the reference price for derivatives expiry settlement, follows a consultation process in which SEBI sought feedback on the existing framework and an alternative proposal. According to market participants, the regulator received more than 20,000 responses seeking a review.
While brokers broadly support the latest change, several market veterans argued that frequent revisions to market regulations could create uncertainty for global investors.
ANMI welcomes revised settlement framework
In contrast, the Association of NSE Members of India (ANMI) welcomed the move, saying it reflected SEBI’s willingness to engage with stakeholder concerns.
“The decision to use the last 30 minutes’ VWAP for derivatives settlement prices is particularly positive, as it delinks expiry settlement from the closing auction price and addresses concerns over potential price influence. The revised framework balances transparency with market liquidity and operational practicality,” said Kamlesh Shroff, President of ANMI.
Shroff added that SEBI deserved credit for analysing market data, consulting stakeholders, and making course corrections to ensure a fair, transparent, and efficient market.
SEBI to reassess framework after a year
Kejriwal said he expects the regulator to continue studying the issue before arriving at a more refined framework. “SEBI will probably continue experimenting for some time, understand how the system was being misused, and then come back with an improved version,” he said.
To be sure, SEBI Whole-Time Member KVR Murthy indicated that the regulator will “wait and watch” for a year before reassessing the framework.