SEBI has accelerated consultations with high-frequency traders, market makers,
domestic mutual funds and brokers after a revamped closing-auction system
launched on Aug. 3 prompted concern, sources said. The mechanism, designed to
improve price discovery and deter manipulation, has disrupted trading: HFT firms
report they cannot borrow sufficient stock in India’s underdeveloped securities
lending market, limiting auction participation. Some brokers have proposed
reverting to the prior mechanism on passive-fund rebalance days until liquidity
improves, and brokers executing for foreign funds warned the system may struggle
to handle flows during the MSCI quarterly rebalancing later this month.
