Finshots Daily Why SEBI wants to change stock closing price rules
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Dec 12, 2024 A proposed change by SEBI aims to transform how stock closing prices are determined in India. The discussion focuses on moving from the current VWAP method to a Closing Auction Session model, enhancing price transparency. It also highlights the potential introduction of a Continuous Auction System, drawing insights from past regulatory experiences in other markets. The challenges investors may face during this transition are explored, inviting listener thoughts and feedback.
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VWAP Closing Price
- Stock closing prices in India are determined using the Volume Weighted Average Price (VWAP).
- This method considers both price and volume traded in the last 30 minutes of trading.
VWAP and Passive Funds
- Passive funds, which track market indices, are affected by VWAP's flaws.
- Deviations between VWAP and actual closing prices create tracking errors, impacting fund performance.
Hello Limited Example
- A large trade at a different price near closing time can skew the VWAP.
- This can lead to discrepancies between the index value and the price passive funds pay.