The Chairman of the Securities and Exchange Board of India (Sebi), Tuhin Kanta Pandey, announced on Monday that the new Closed Auction System (CAS), introduced on August 3rd, will be retained. Furthermore, the regulator plans to prepare a consultation paper regarding reforms in the field of securities lending and borrowing.
During the launch of cyber reporting platforms in NISM, the Sebi chairman noted that CAS will definitely remain in effect. He added that the regulator is ready to consider any industry suggestions for improvements, should they be required.
The head of Sebi emphasized that there are no concerns about tracking errors. Many market participants welcomed the introduction of CAS as it provides a single price for trade execution, unlike the previous system which calculated the price based on volume-weighted average cost.
Pandey also pointed out that some market participants have not yet updated their systems, which were developed based on the old system and the VWAP system. He explained that when implementing major changes that have existed for years, people may not exert all effort to adopt the new system, assuming the changes will be postponed. He acknowledged that initial difficulties arise with any major change.
He added that success depends on attracting Foreign Portfolio Investors (FPIs) and supporting passive investing, which already accounts for 30 percent of the market. He also noted that the regulator will soon present a consultation paper on the mechanism of securities lending and borrowing as part of efforts to stabilize CAS.
Pandey clarified that the SLBM (securities lending and borrowing) mechanism will help increase participation in CAS, which is one of the regulator's goals. He reported that they have a working group and must transition to the reformed SLBM very soon, stressing the need for urgency. However, before issuing the consultation paper, the opinions of various market participants must be heard.
SLB is a system that allows investors to rent out their spare shares to others for a fee. On the other hand, short selling is a trading strategy where borrowed securities can be sold and then repurchased at a lower price to profit from the difference. Exchanges also launched shorter-term contracts under the SLB scheme on Monday, giving traders the opportunity to settle the reverse side of the transaction within three days.
Responding to questions about manipulation cases, Pandey stated that the regulator is analyzing the available data. He specified that teams have studied all submissions received from social media and are holding discussions with participants to achieve the set goals. He concluded that many aspects will improve through participation, and indicative prices are of great importance.
