SEBI's new CAS rules will help reduce volatility, normalisation expected soon: Experts

Mumbai (Maharashtra) [India], August 18 : Amid SEBI's emphasis that the Closing Auction Session (CAS) is "here to stay" as a core market reform, experts have said that some adjustments will be required in the initial period and people who hedge using algorithms and risk management practices will have to get used to it.
The new CAS framework has forced a swift recalibration across trading desks.
Devarsh Vakil, Head of Prime Research at HDFC Securities, said that intermediaries are actively spreading public awareness across all trading channels.
"It's a recent regulatory development, so the people who hedge using algorithms and risk management practices will have to get used to this".
He said the newly-introduced Securities Lending and Borrowing Mechanism (SLBM) classes will bolster closing-session liquidity.
"Eventually it will settle down. In the long run I think these are the steps which will help reduce the volatility and it is a step in the right direction," he said.
"The representatives from our risk and compliance and IT people have been interacting with various regulators and giving our feedback. SEBI is quite open to learning new suggestions from the participants and improving the system," he added.
Shrikant Chouhan, Head of Equity Research at Kotak Securities, said that at the beginning, any particular system creates some problems "because of the overall understanding of the segment with traders, investors, or option traders".
"The option traders are mainly affected because within this 15-minute gap, prices change a lot, which impacts option writers, especially on the day of expiry. The intraday volatility is very low. India VIX is close to 11 or 11.5 levels, which is the lowest," he said, adding that it signals that "option traders are not active."
Chouhan emphasised that the regulator remains open to discussions with brokers and proprietary desks.
"They are ready to listen to all brokers, option traders, and algorithm operators...in the next one or two months, something concrete will come out, leading to normalisation in the market," he said, adding that the step will fulfil the government's objective to curb excessive speculative activity.
SEBI Chairman Tuhin Kanta Pandey stated on Monday that the Closing Auction Session (CAS) is "here to stay" as a core market reform.
He noted that the regulator is open to making operational tweaks to refine the mechanism, if needed.
Speaking to media on the sidelines of the Symposium on Cyber Defence at SEBI's NISM Campus in Navi Mumbai, Pandey addressed market friction and social media backlash surrounding the recent CAS rollout.
Defending the mechanism, Pandey emphasised that CAS aligns Indian equities with global benchmarks.
"Internationally, market participants have really welcomed CAS because execution at the closing price is bound to rise, replacing the earlier practice where prices were derived based on VWAP (Volume-Weighted Average Price)," Pandey said.
Acknowledging initial trading disruption, Pandey attributed the friction to legacy infrastructure rather than structural flaws.
"Some of the concerns being raised stem from the fact that certain market players have not updated their own internal systems yet," Pandey explained.
"Remnants of historical systems built around event-driven setups are still in place. Traders using specific algorithms didn't immediately see the typical benefits they were used to," he added.