Sebi asks brokers to boost retail participation after auction debut | Stock Market News

Mumbai: The Securities and Exchange Board of India (Sebi) has asked brokers to encourage greater participation by retail investors in the newly introduced closing auction session (CAS), amid concerns over sharp price swings and liquidity during the market’s final minutes of trading, three people aware of the discussions told Mint.

The regulator conveyed the message during a meeting with brokers on Tuesday, ahead of the second day of trading under the new framework.

One of the people cited above, who requested anonymity, said that the brokers agreed to Sebi’s request, and in turn told the regulator that the earlier closing of the continuous trading session at 3:15 pm from 3:30 pm meant that arbitrage funds of AMCs (asset management companies) can’t trade during this window as they have to initiate buy-sell legs simultaneously.

“This meant that supply could not match with demand from other large institutional players, leading to price spikes during the auction. Sebi told us they would look into this aspect,” he said.

The discussions took place against the backdrop of differences in closing movements of the Nifty 50 and Sensex for the past two days, with the Nifty spiking and the Sensex remaining relatively tepid.

On Tuesday, which was the weekly expiry day of Nifty options, the Nifty 50 closed down 0.64% at 24,614.9 while the Sensex settled 0.27% lower at 78,428.95. A day earlier, a 200-point spike in two minutes during the auction session caused the Nifty to rally 1.6% against Sensex’s rise of 0.7%.

Tuesday’s difference would have been wider but for the fact that the Nifty jumped 151.45 points from 24,463.45 at the close of the continuous trading session at 3:15 pm to auction closing at 3:35 pm. In comparison, the Sensex rose just 104.39 points during the same period.

Market participants also raised the possibility of sharp surges in options prices during Thursday’s Sensex options expiry, owing to very low liquidity in the BSE CAS.

Data from the exchanges showed that BSE’s auction value was just ₹9.4 crore compared with ₹1,542.4 crore for NSE’s auction value on Tuesday.

“The closing price situation today (Tuesday) was a little better than yesterday, but it does bring the Sensex weekly expiry (Thursday) into focus,” said another broker.

“Sebi is in support of this framework and has told all brokers to educate their members on CAS and encourage them to participate. However, some traders/ investors are also showing disinterest and choosing to not engage in CAS owing to uncertainty over the closing price,” he added.

This broker cited the surge in price of the 24,450 Nifty call option, which expired on Tuesday. Against a volume weighted average price (VWAP) of ₹91.68 a share just before the auction, the call option ended at ₹164.85 a share at 3:40 pm.

While the continuous cash market runs from 9:15 am to 3:15 pm under CAS, derivatives run till 3:40 pm and use the closing price at auctions on expiry days to settle options.

Queries to Sebi went unanswered till press time.

Market participants said the absence of arbitrage funds could reduce liquidity during the closing auction, especially on days with large institutional trades.

A fund manager said ₹3.4 trillion of arbitrage funds run by MFs are unlikely to participate in CAS as neither the final execution price nor the allocated quantity is known in advance. Without that certainty, they cannot effectively hedge their exposure by taking offsetting positions in the futures market.

“This becomes particularly relevant on index rebalancing days, when passive funds execute large portfolio adjustments. If arbitrage participants stay away from the CAS, a key source of liquidity is lost, making it more challenging to absorb these large orders efficiently,” he added.

If a fund voluntarily restricts its trading during a particular period, it may have to let go of attractive investment opportunities.

Arbitrageurs are participants who exploit price differentials between assets, thereby imparting liquidity to markets.

Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them. She holds a postgraduate diploma in business and financial journalism from the Asian College of Journalism, where she developed a strong foundation in markets, companies, and economic policy. She began her journalism journey with an internship at Bloomberg, where she worked across beats such as real estate, infrastructure, capital markets, and deals, which helped her understanding of business and finance.<br><br>She is guided by the belief that everything in this world can be explained in simple and fewer words, and that idea shapes how she approaches her writing. She aims to cut through complexity and present nuanced regulatory and financial developments in a way that is both accessible and meaningful to readers.<br><br>When she is not tracking market chatter, Apoorva can usually be found deep into a fiction novel or out on a long run. She is also a trained classical dancer in Bharatanatyam, Mohiniyattam, and Kathakali.

Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.

Srushti is a markets reporter at Mint. She writes on equity markets, and her areas of coverage range from brokers and exchanges to mutual funds and the fast-evolving alternatives space, including GIFT City, from the financial capital of India. She has an experience of over three years in journalism, and has previously worked at Moneycontrol. She has an undergraduate degree in mass communication and a postgraduate diploma in business and financial journalism from Asian College of Journalism, Chennai.<br><br>Srushti prefers meeting people from the industry over making calls. Her work aims to drive impact—her story on illegal gold imports, for instance, caught the government’s attention and contributed to a policy shift. She specialises in turning complex market data into clear, engaging stories so even her grandmother could understand futures and options.<br><br>Outside of the newsroom, she enjoys spending money on jewellery and watching thriller films—especially the kind that keep her awake at night. She spends 1.5 hours a day commuting in Mumbai locals, listening to horror podcasts on her way to work. She’s also very talkative—so reach out only if you have lots of time.

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