2 weeks ago
India’s Closing Auction Turmoil Clouds BSE Growth Outlook
BSE introduced a new way to set share prices at the end of the trading day.
This system is called the Closing Auction Session.
It is designed to make prices fairer and reduce possible manipulation.
After it started on August 3, some options trading activity on BSE declined.
The exchange’s shares have also fallen by more than 9% this month.
Some analysts now worry that BSE may have less room to grow.
Jefferies and Nuvama both became more cautious about the stock.
India’s market regulator says the new system will stay.
BSE could try raising some fees to improve its profits.
BSE shares have fallen more than 9% this month amid concerns over the Closing Auction Session.
Options turnover and contract volumes declined after the system began on August 3.
Average daily premium turnover fell 18%, while contracts traded dropped 20% for two August expiries.
Jefferies downgraded BSE to underperform, while Nuvama cut its rating to hold and lowered its price target.
Securities and Exchange Board of India says the auction mechanism will remain despite complaints from market participants.
- Who
- BSE Limited, analysts including Jefferies and Nuvama, and India’s market regulator Securities and Exchange Board of India.
- What
- The introduction of the Closing Auction Session has been followed by lower BSE options activity and concern about the exchange’s growth outlook.
- Where
- On BSE, India’s stock exchange market.
- When
- The system was introduced on August 3; trading declines were reported for the August 6 and August 13 expiries.
- Why
- The auction is intended to improve end-of-day price discovery and prevent market manipulation, but its effects on trading volumes and BSE’s growth have raised investor concerns.
Regulatory and Reform Case
Investor and Analyst Concerns
Purpose of the auction
Regulatory and Reform Case
The Securities and Exchange Board of India supports retaining the mechanism, which is modeled on developed-market frameworks to improve price discovery and prevent manipulation.
Investor and Analyst Concerns
Analysts and investors are concerned that the new system has contributed to lower options turnover and volumes on BSE.
BSE’s growth outlook
Regulatory and Reform Case
BSE still has buy ratings from more than half of the analysts covering it, and the consensus price target suggests about 20% upside.
Investor and Analyst Concerns
Jefferies downgraded the stock to underperform, while Nuvama cut it to hold and reduced its price target by 20%; Nuvama said there was no near-term trigger.
Profitability response
Regulatory and Reform Case
BSE could raise options fees and messaging fees for its co-location facility to support profitability.
Investor and Analyst Concerns
Jefferies said investors may value BSE primarily for volume-led growth, making fee increases an uncertain substitute for stronger trading volumes.
Key facts
- System introduction
- The Closing Auction Session began on August 3.
- BSE share performance
- BSE shares have fallen more than 9% this month.
- Premium turnover
- Average daily premium turnover declined 18% for the August 6 and August 13 expiries versus July weekly-expiry averages.
- Contract activity
- The number of contracts traded fell 20% during the same period.
- Analyst coverage
- More than half of the 18 analysts tracking BSE still have buy ratings.
- Consensus outlook
- The 12-month analyst consensus implies about 20% upside for the stock.
- Regulatory position
- The Securities and Exchange Board of India says the auction mechanism is here to stay.
Quotes
Prithvish Uppal
Nuvama analyst
“With contract market share at ~50% and incremental levers exhausted, we see no near‑term trigger.”
livemint.com
Sources
Related news
BSE shares slide on downgrades ahead of Nifty 50 entry
BSE Shares Fall as New Closing Auction Session Draws Scrutiny
India’s Options Turnover Falls as NSE Faces IPO Pressure
India's Markets Fall as New Closing Auction System Unsettles Traders
SEBI's Closing Auction Session Sparks Debate Over Market Readiness
Sebi Reviewing New Auction System Amid Liquidity, Trading Concerns
PVR Inox Buyback: September 3 Last Day to Buy
Augmont Enterprises Rises Despite Gold-Buying Appeal and Market Risks
Spice Lounge Food Works Stock Hits Upper Circuit Amid Crash
Indian Stocks Slide as Oil, Conflict and Yields Rise
