Now Reading: Sebi closing auction distorts prices for Rs 11.7 lakh crore ETF industry
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Sebi closing auction distorts prices for Rs 11.7 lakh crore ETF industry
Sebi closing auction distorts prices for Rs 11.7 lakh crore ETF industry
Mumbai: The Securities and Exchange Board of India's new closing auction session (CAS), introduced on 3 August for 213 derivative-traded stocks, is distorting the pricing of exchange-traded funds (ETFs). The mechanism replaces…
Mumbai: The Securities and Exchange Board of India's new closing auction session (CAS), introduced on 3 August for 213 derivative-traded stocks, is distorting the pricing of exchange-traded funds (ETFs). The mechanism replaces the volume-weighted average price (VWAP) method, but leaves stocks not in the list still closing via VWAP at 3:30 pm.
For ETFs that hold both CAS and non-CAS stocks, the 15-minute gap between the two closing methods creates a mismatch between the fund's indicative net asset value (iNAV) and the real-time value of its underlying portfolio. An official told Mint on condition of anonymity that investors may stop trading ETFs in that period if they cannot see accurate pricing. Mutual fund executives have been raising the issue with Sebi since consultations began. Mint's email to Sebi remained unanswered.
The ETF industry has grown to Rs 11.71 trillion in assets as of July. The regulator has not said when it will extend CAS to all stocks. The next step will be Sebi's response to industry representations.
Indian Opinion Analysis
Exchange-traded funds now hold near Rs 12 lakh crore across the industry. The pricing mismatch hits only the last 15 minutes of trading, but that window is when institutional and high-frequency volumes are heaviest. Sebi’s own framework requires equity ETF iNAV updates within 15 seconds of the underlying market, the CAS gap makes that compliance impossible for some schemes. The regulator first consulted on the closing auction in 2021 and implemented it in phases, starting with the 200 most liquid stocks. Until the 213-stock limit is expanded, Sebi has not announced a timeline, asset managers and market makers face two possible fixes: suspend ETF trading during the CAS window or switch to manual price adjustments, both of which introduce their own distortions. The next milestone will be any Sebi board meeting agenda disclosing a broader CAS rollout.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
