Initial liquidity issues with CAS seen across global markets: Sebi chief

Says AI can help the regulator shift to 'proactive' monitoring from 'periodic' monitoring; Sebi is also set to propose changes to the closing auction framework

Securities and Exchange Board of India (Sebi) chairman Tuhin Kanta Pandey on Thursday said all global jurisdictions have faced lower liquidity in the initial phases of implementation of the closing auction session (CAS). The stock price determination framework was implemented in India starting from August 3.

 

Speaking on the sidelines of the Global Fintech Fest 2026 (GFF), the Sebi chairman reiterated that while the markets regulator is soon going to issue a consultation paper on proposed changes to the framework, CAS as a mechanism was here to stay.

 

“We have had several participants who have absolutely praised that implementation of CAS — that MSCI rebalancing and all have gone off very well. Technically, the whole thing went off well. Now, there is a certain segment of the market that gets impacted because of the way we kept the settlement price as completely dependent,” said Pandey.

 

 

Sebi had announced last week that it will soon come up with a consultation paper on changes to the methodology used for determining settlement prices of derivative contracts, following feedback. The proposals are expected this week.

 

“CAS is here to stay…the only question is of liquidity. Many market participants have told us about the rollout in all jurisdictions including the US, Japan, and Hong Kong, and they have said that initially, everywhere, when CAS was brought [in], liquidity was always an issue and it builds over time. The issue is whether we [should] just keep on waiting or we can have some temporary solutions to the issue,” the chairman stated.

 

Among the key global markets, Hong Kong had launched CAS in 2008, but withdrew it in 2009 after end-of-day price swings. The country reintroduced CAS in 2016 with price limits and other changes.

 

Several brokerages expect tighter auction price bands, extended or overlapping with the derivative session, or settling index derivatives on volume-weighted average price (VWAP).

 

Addressing a panel at the GFF, Pandey detailed the usage of artificial intelligence (AI) tools by the Sebi in surveillance and safeguards.

 

“AI can help regulators. We are using certain AI tools — they can help us see risks earlier but it should inform regulatory judgment, not replace it. What we can do with AI is from periodic monitoring we can move to proactive monitoring. Supervision can be more off-site than on-site, and near real-time rather than periodic,” he added.

 

The Sebi chairman detailed initiatives and tools by the regulator such as Surveillance of Unauthorized Digital Activity via Real-time Scanner for Anti-fraud (Sudarsan), Regulatory AI-Driven Advertisement Reviewer, or R(AI)DAR, and Cybersecurity Audit Compliance Portal (C-SAC). These tools are helping the Sebi to monitor social media and intermediary advertisements, and analyse cybersecurity controls.  

 

“Oversight must be competent, empowered, and accountable. Then, I think the safeguards must surround the model… Agentic AI also needs hard boundaries on what it may do. AI can create its own concentration risk. Common models, cloud infrastructure of providers can become shared points of failure. Predictive supervision should not create a new systemic vulnerability while detecting old ones. And capability is a control. We have to build capabilities among supervisors,” the chairman noted.