Former MP Kirit Somaiya has urged the Department of Economic Affairs to suspend the new Closing Auction Session (CAS) introduced on August 3, 2026, citing risks of market manipulation. The issue is critical for investors as the closing price affects derivative settlements, mutual fund NAVs, and index valuations.
Former BJP Member of Parliament and chartered accountant Kirit Somaiya has formally requested the Department of Economic Affairs to suspend the Securities and Exchange Board of India’s (SEBI) new Closing Auction Session (CAS). Introduced on August 3, 2026, to replace the former volume-weighted average price (VWAP) calculation, the new mechanism is now facing scrutiny following a sharp volatility event on August 27, 2026, where the benchmark indices witnessed a significant, rapid movement during the final trading minutes.
In his representation, Somaiya raised concerns that the current CAS structure, which segregates orders into distinct books, may be contributing to price fragmentation and insufficient liquidity at the end of the trading day. He has advocated for a return to the older VWAP-based system as a temporary safeguard, arguing that until the regulator implements more robust protections against artificial volatility, the current system remains a potential vulnerability for the broader market.
Why the Closing Session Matters for Investors
The closing price of a stock is not just a daily final number; it serves as a critical benchmark for the entire financial ecosystem. Mutual funds use the closing price to calculate their daily Net Asset Value (NAV), which determines the value of investor holdings. Additionally, derivative contracts—including futures and options—often settle based on these closing figures. If the closing price is perceived as inaccurate or subject to extreme, manipulated swings, it can lead to unfair settlement values, impacting both institutional and retail portfolios.
Concerns regarding the CAS center on the transition from the continuous, data-backed VWAP model to an auction-based model. Critics, including some market observers, have pointed out that in periods of high volatility or during monthly derivative expiry, the current auction structure may not have enough depth to absorb large orders without causing excessive price distortion. This can result in a closing price that does not fully reflect the trading activity throughout the day, creating discrepancies that can affect index-linked products.
Current Regulatory Stance
While the demand for suspension has gained attention, SEBI leadership has maintained that the CAS mechanism is intended to stay. The regulator has indicated in previous updates that it continuously monitors the market for signs of manipulation. To date, SEBI has stated that early assessments of the new system have not provided evidence of widespread or structural manipulation, though it continues to evaluate the effectiveness of the session in real-time.
The next step for investors will be to monitor any official response from the Department of Economic Affairs or SEBI regarding this request. Market participants are also keeping a close watch on the daily closing sessions to see if the erratic swings observed during the August 27 event remain an isolated occurrence or if they represent a recurring structural risk that may necessitate further regulatory adjustments.