5 days ago
SEBI Keeps Closing Auction Session Unchanged Amid Expiry Volatility
The Closing Auction Session is a special period used to help decide a market's final price.
It was created so that a few large orders would have less power to change that price.
The auction runs from 3:20 p.m.
to 3:35 p.m., after regular cash-market trading ends.
Traders can place orders within a 3% price range.
Experts say too few people are using the auction, so small orders can sometimes move prices sharply.
Some option traders are also participating less because option prices do not always fall as expected near the close.
SEBI says the system needs more time and wider participation before any changes are considered.
One expert says volatility in the Nifty has declined, while concerns continue for other indices.
Traders have been advised to understand the system and wait for liquidity to improve.
SEBI Chairman Tuhin Kanta Pandey said no immediate changes are planned to the Closing Auction Session.
The CAS was introduced to improve closing-price discovery and reduce the influence of large late-session orders.
Experts say low liquidity, especially among retail traders and option writers, is contributing to sharp expiry-day moves.
A 3% trading range during the 15-minute auction may amplify index movements when participation is limited.
Nifty-related volatility appears to have eased, but concerns remain around the Sensex, Bankex and options traders.
- Who
- The Securities and Exchange Board of India, SEBI Chairman Tuhin Kanta Pandey, and market experts Chandan Taparia and Anand James.
- What
- SEBI is keeping the Closing Auction Session unchanged despite sharp price movements on some expiry days.
- Where
- In India's equity and derivatives markets, including trading linked to the Nifty, Sensex and Bankex.
- When
- The CAS operates from 3:20 p.m. to 3:35 p.m.; SEBI's position was stated at the NSE Clearing 30th Anniversary Celebration.
- Why
- SEBI says participants need more time to understand and use the mechanism, while experts identify low liquidity and derivatives-related trading behavior as causes of volatility.
SEBI and System Supporters
Market Expert Concerns
Whether CAS should be changed
SEBI and System Supporters
SEBI says no changes are needed now and expects participation to increase as brokers enable the system in their applications.
Market Expert Concerns
Experts say the mechanism may create sharp movements until liquidity and participation improve.
Cause of expiry-day volatility
SEBI and System Supporters
The regulator's view is that market participants need more time to understand and use the new mechanism.
Market Expert Concerns
Experts emphasize low liquidity, cautious option writers, and the interaction between derivatives and the closing price.
Effectiveness of the 3% range
SEBI and System Supporters
The range provides a defined structure for matching buy and sell orders during the auction.
Market Expert Concerns
Anand James said the 3% cap may be large for the short CAS window and could move indices significantly.
Long-term value
SEBI and System Supporters
Chandan Taparia believes CAS could be beneficial over the long term and is consistent with practices used in global markets.
Market Expert Concerns
Experts advise retail investors to let the system settle and wait for liquidity to improve before actively navigating it.
Key facts
- Regulatory position
- SEBI is not considering changes to the CAS at present.
- CAS window
- The auction runs from 3:20 p.m. to 3:35 p.m.
- Permitted range
- Participants are advised to place buy and sell orders within a 3% range.
- Main concern
- Experts say limited participation is reducing liquidity and making price discovery more sensitive.
- Nifty movement
- One expert said expiry-day swings fell from about 220 points initially to roughly 50–60 points.
- Other affected indices
- Sharp movements are still being seen in the Sensex, while the Bankex was also specifically cited.
- Options impact
- Reduced participation by option writers may be weakening liquidity around the close.
Quotes
Tuhin Kanta Pandey
SEBI Chairman
“Now very few retailers are participating in this because you have to put the order with the view that you might not get the trade. Why should people do other activities, right? And because of that, so many people are not putting orders in CAS. So liquidity is totally missing in the CAS and very few participants are putting the order and that influences the CAS because of their bid option system.”
financialexpress.com
“With the present system, we have a bit of concern with option traders being in the dark even as the underlying stocks’ continuous trading stops at 3 15pm. Additionally, the 3% cap appears large for the short CAS window as it is capable of moving indices”
financialexpress.com
Sources
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