MUMBAI: Sebi chairman Tuhin Kanta Pandey on Monday ruled out reversing the closing auction session (CAS), which has led to fluctuations in the market since its introduction on August 3. He said options trading cannot drive market policy and stressed the need to urgently revamp the securities lending and borrowing mechanism (SLBM).
Sebi is moving with a “sense of urgency” to overhaul the SLBM, with a consultation paper on the proposed framework expected “very soon”, Pandey told reporters on the sidelines of an event on cyber defence at the Sebi-run National Institute of Securities Markets (NISM) at Patalganga.
His comments came after the clearing corporations of NSE and BSE announced shorter three-day SLBM contracts aimed at increasing participation in the CAS. The shorter contracts are expected to encourage securities lending around the closing auction and support inter-exchange arbitrage, price alignment and market efficiency.
Pandey said he hoped the revamped SLBM would improve participation in CAS, the new price-discovery framework introduced on August 3.
Stating that CAS is here to stay, Pandey said, “we are consulting with various stakeholders, gathering input, and monitoring feedback, including social media discussions. If any adjustments or improvements are needed, we will certainly consider them. You can see that the discrepancies observed on August 3 have significantly narrowed now. But there is no question of rolling it back.”
“We aren’t intending to reverse the system and that any changes would focus on addressing specific constraints or issues identified through the data,” he added.
On options trading, Pandey said, “this cannot be the sole consideration while framing market regulations,” adding that India also needs to focus on attracting foreign portfolio investors and expanding passive investing, which already accounts for around 30% of the market.
“It really depends on our success in terms of attracting FPIs, allowing passive investing, which is already 30% of our market and we cannot just put out this thing on this issue just because some people want to do options trading in the way they want to do options trading,” Pandey said.
On the SLBM revamp, he said, “we must get to the reformed SLBM very soon. A working group was already examining the reforms as market participants would need to be heard before the consultation paper is released.”
The SLBM revamp assumes significance as Sebi seeks to increase participation in a segment that has historically seen limited participation and high borrowing costs. Pandey said a more efficient SLBM framework could also improve participation in CAS.
“It will definitely help in CAS because the CAS would mean more participation, SLBM improves CAS participation,” Pandey said.
“We continue to analyse unusual trading activity, particularly around expiry days, before deciding whether any changes are required and will soon come with a view,” he said, reiterating that the new framework would not be rolled back.
“CAS is here to stay with higher participation and resolving existing issues key to improving the system. CAS cannot be tracked on a day-to-day basis. Unnecessary issues should not be created in the market. Indicative prices are extremely important for traders," added Pandey.