CAS is here to stay; liquidity is expected to increase over time, says SEBI official.
SEBIs Views on Continuous Auction System (CAS) Amid Concerns
Tuhin Kanta Pandey, a prominent official at the Securities and Exchange Board of India (SEBI), has expressed confidence in the Continuous Auction System (CAS), indicating that it is expected to remain a staple in market operations. He emphasized that liquidity within this system tends to improve over time as participants become more accustomed to its functioning.
Industry Perspectives
Despite Pandeys optimistic outlook, a diverse range of reactions from industry professionals has emerged. Some experts have criticized the CAS, labeling it “penny wise and pound foolish,” arguing that it has generated unfavorable outcomes without delivering significant benefits. These critiques highlight concerns about the systems efficiency and the potential impacts on market stability.
Market Participation and Auction Mechanism
The Bombay Stock Exchange (BSE) has reported that a significant portion of market participants still shy away from utilizing the new closing auction mechanism introduced under the CAS framework. BSEs chief indicated that this reluctance may hinder the intended advantages of the system.
Additionally, SEBI chairman acknowledged that CAS encountered initial liquidity challenges across global markets, which may have contributed to the cautious approach by some market players.
Potential Modifications
In light of existing concerns, discussions have emerged regarding possible modifications to the CAS. Suggestions include adopting a Volume-Weighted Average Price (VWAP) approach and establishing tighter trading bands to enhance the systems efficacy and address liquidity issues.
Future Implications
As the market evolves, stakeholders will continue to monitor the CASs performance and the implications of potential regulatory adjustments. The ongoing dialogue between regulators and market participants will be crucial in shaping the future of trading systems in India.