The most dangerous words in regulation are sometimes not “we were wrong”; they are “we can fix it”. They sound responsible. But there comes a point when fixing a decision becomes a way of avoiding the more uncomfortable question of whether the decision itself should survive.

SEBI’s handling of the Closing Auction Session (CAS) is beginning to approach that point.

CAS And Its Stated Goals

CAS went live on August 3 after considerable development. Its stated goals were better price discovery and allowing investors to trade at the closing price. The proposal leaned heavily on the fact that major international markets use closing auctions.

But “used elsewhere” is not the same as “proven effective for India”.

There is no public evidence that SEBI empirically showed, before launch, that CAS would produce a better closing price than the 30-minute VWAP it replaced. No Indian study, simulation or counterfactual demonstrated improved price discovery, lower volatility or reduced vulnerability to strategic trading.

CAS appears to have begun as an assumption “that a developed-market mechanism would improve India’s closing process”. Empirical validation was left for later.

India’s Distinct Market Structure

India’s market structure is different—large retail participation in derivatives, distinctive expiry-day dynamics, and a shallow securities lending and borrowing market. SEBI itself has noted limited SLBM participation and is exploring ways to revive it. A mechanism that works in New York, London or Hong Kong is not automatically suitable for Mumbai. Regulatory architecture........

© Free Press Journal