New Delhi, Sept. 16 -- The Securities and Exchange Board of India (Sebi) has temporarily allowed arbitrage funds to carry unhedged positions of up to 1% of assets under management (AUM) to improve participation in the closing auction session (CAS), according to two officials privy to the development.

"Sebi has temporarily allowed arbitrage funds to have 1% of their AUM unhedged so that they can participate in CAS. This will help bring more liquidity to the closing auction session," one of these officials said on the condition of anonymity.

Previously, the closing price was calculated using a stock's or index's 30-minute volume-weighted average price (VWAP). Under the auction system launched on 3 August, the closing price is established ...