India regulator asks brokers to accept orders during closing auction transition to boost liquidity, brokers say

India’s markets regulator has asked brokers to accept orders during the five-minute transition to the closing auction session (CAS) to improve liquidity and price discovery under the new closing mechanism for stocks, three brokers told Reuters.

The CAS is a 20-minute auction window that begins at 3:15 p.m. IST after regular trading ends and is used to determine the closing levels of stocks.

Under the present mechanism, orders are not taken from 3:15 p.m. to 3:20 p.m. IST. These five minutes are set aside to calculate reference prices and transition from continuous trading to CAS.

However, the Securities and Exchange Board of India has now asked brokers to accept orders during the five-minute window as it aims to boost market participation and efficient price discovery, the brokers said. They requested anonymity as they’re not authorized to speak to the media.

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“Starting in September, we will begin accepting after-market orders between 3:15 and 3:20 pm to enhance price discovery in CAS. This change will increase CAS’s efficiency,” said Dhiraj Relli, managing director and CEO of HDFC Securities.

The move comes after multiple meetings between the regulator and stock brokers aimed at improving the efficiency of the new closing method, according to the brokers.

SEBI did not immediately respond to Reuters request for comment.

The new mechanism led to sharp swings in the benchmarks Nifty 50 and BSE Sensex in the first few sessions after being implemented on August 3.

Analysts attributed the volatility to a lack of liquidity and depth in India’s securities lending and borrowing (SLB) mechanism, which makes it difficult to short a stock.

Exchanges have since taken steps such as providing the indicative price for benchmark indexes during the closing auction session and introducing shorter-tenor contracts in the SLB segment to improve the system.