SEBI probing August 3-4 trades during CAS to check for possible manipulation

The market regulator, the Securities and Exchange Board of India (SEBI), is closely examining trades executed during the Closing Auction Session (CAS) on August 3 and 4 to determine whether any transactions were manipulative, people familiar with the matter told Moneycontrol.

According to sources, SEBI has sought trading data from stock exchanges for the first two days of the new closing mechanism. The exchanges have provided the requested data and the regulator is now analysing the trades, sources said.

“The data is being examined to check whether the wider gap between pre-CAS and post-CAS index levels was normal or whether some trades were placed to manipulate the closing price,” one source said.

The scrutiny comes after market participants raised concerns over the sharp difference between index levels before the CAS and the levels recorded after the auction session on the first two trading days.

On August 3, the first day of CAS, the Nifty was around 24,573 at 3:28 pm before moving to around 24,774 by 3:30 pm, a jump of about 201 points in the final minutes.

Similarly, on August 4, the Nifty was around 24,463 at 3 pm and moved to approximately 24,615 by 3:15 pm, marking a rise of about 152 points.

Risk of manipulation

Market participants said weak liquidity during the CAS period could increase the risk of manipulation, particularly in indices or stocks where cash-market turnover is relatively low.

For instance, a large fund or a group of operators could invest a significant amount in a passive index fund while simultaneously taking positions on the same index, anticipating that passive buying would push the index higher. Such a strategy could potentially be used to influence index levels during the auction period.

“Such possibilities are higher on expiry days for indices where cash-market turnover is low, say ₹100-200 crore during the CAS period,” a market participant said.

However, establishing that such trades were manipulative could be difficult, market participants said. The regulator would need to establish that there was an intention to influence the index or closing price.

“Simply identifying trades that had an impact on the index may not be enough. It has to be established that there was a coordinated move by parties to manipulate the index,” another market participant said.

To address the risk of manipulation due to weak participation, SEBI is closely monitoring trading activity and has also asked brokers to increase retail investor participation and display indicative prices prominently on their trading applications.

Sources said SEBI’s probe of trades is to ensure there is orderly trade in the market and not to discourage genuine traders. The source further added that such a strict monitoring mechanism was envisaged before the implementation of CAS.

What is CAS and why was it introduced?

The Closing Auction Session (CAS) is a 15-minute auction from 3:15 pm to 3:30 pm to determine the official closing price of eligible securities. Buy and sell orders are collected and matched at an equilibrium price that maximises traded volume.

It was introduced to improve price discovery and make closing prices more representative while reducing the scope for manipulation. The mechanism also aims to align India’s market structure with global practices.