SEBI's New Closing Auction System Will Stabilise With Time Says Nilesh Shah

Nilesh Shah explains the impact of India’s closing auction mechanism and why initial teething troubles should ease as market participants become more familiar with the system. He says the mechanism, already used globally, can benefit passive funds by helping reduce tracking errors and provide a more efficient execution price. Active funds could also use the price movement around the auction to their advantage. However, Shah flags challenges for arbitrage funds, particularly around uncertainty over cash-market execution prices and limited futures-market liquidity after the auction. He believes that, barring arbitrage funds, the closing auction framework is broadly positive for equity mutual funds and should become an integral part of the market.