3 weeks ago
Nifty closing price volatility eases on third day of auction
Stock markets have a special little window at the very end of the day called a closing auction.
During this time, traders decide the official price at which the market closes.
India's National Stock Exchange just started using this new rule.
On the first two days, the price jumped up and down by a lot — 200 and 150 points.
On the third day, the jump was much smaller, only 54 points.
Even that small jump was enough to change the day from a small loss to a small gain.
Fewer shares were traded during the auction that day.
Some experts think the jumps will calm down as traders get used to the new rule.
Others worry that big investors could use it to take advantage of smaller investors.
On Thursday, another exchange called BSE will face a big test when special contracts end on the same day.
Volatility in Nifty 50's closing price eased on the third day of the closing auction, with a 54-point spike versus 200 and 150 points in the first two sessions.
Nifty 50 closed 10 points above its previous close after being about 45 points down at the start of the closing auction.
Volume and value of shares traded during the closing auction declined 7% and 10% respectively compared with Tuesday.
Experts are divided: some expect volatility to fade as traders adapt to the new mechanism, while others warn of persistent uncertainty and possible misuse.
BSE Sensex rose 152 points and the banking index was flat after the RBI MPC left interest rates unchanged.
- Who
- Traders and institutional investors in Indian markets, along with experts Gaurav Arora (SAHI) and Anand James (Geojit Investments), and the National Stock Exchange and BSE.
- What
- Volatility in Nifty 50's closing price during the newly launched closing auction session eased on its third day, though uncertainty about the mechanism remains.
- Where
- India, on the National Stock Exchange (NSE) and BSE.
- When
- Wednesday (the third day of the closing auction); attention now shifts to Thursday's BSE auction amid the weekly expiry of derivative contracts.
- Why
- The closing auction mechanism was introduced to set the official closing price and help institutional investors execute bulk orders, but participants are still adjusting to it, causing price spikes and differing views on its impact.
Supporters of the closing auction
Critics and skeptics
Volatility outlook
Supporters of the closing auction
Experts like Gaurav Arora of SAHI expect the magnitude of CAS spikes to reduce as familiarity grows and execution strategies evolve, with improved participation and liquidity in the auction.
Critics and skeptics
Anand James of Geojit Investments says the disparity due to CAS could persist in upcoming sessions because market participants remain uncertain about the final closing price once continuous trading stops.
Fairness to retail investors
Supporters of the closing auction
A senior brokerage official notes that CAS is a standard practice in global markets that helps institutional investors execute bulk orders and avoid market volatility.
Critics and skeptics
A source close to a brokerage association says the manner of CAS implementation could increase market discrepancies, with large institutional investors taking positions in cash and derivative markets at the cost of retail investors.
Immediate disruption vs long-term benefits
Supporters of the closing auction
Arora believes initial frictions will ease as liquidity improves and participants adapt, allowing the mechanism's benefits to become more evident over time.
Critics and skeptics
Arora also warns that uncertainty around the final closing price could cause a decline in options trading volumes, especially on expiry days, and discourage traders who rely on precise end-of-day pricing for risk management.
Key facts
- Nifty 50 CAS spike (Day 1)
- 200 points
- Nifty 50 CAS spike (Day 2)
- 150 points
- Nifty 50 CAS spike (Day 3)
- 54 points
- Nifty 50 close (Day 3)
- 10 points above previous close
- CAS volume change
- -7% vs Tuesday
- CAS value change
- -10% vs Tuesday
- BSE Sensex close
- 152 points higher
- RBI MPC decision
- Rates unchanged; banking index +0.02%
Quotes
Senior official from a leading brokerage
An unnamed senior brokerage official
“"As familiarity with the new mechanism grows and execution strategies evolve, the magnitude of spikes during CAS is likely to reduce."”
financialexpress.com
“"The new pricing mechanism is likely to affect auction traders the most and will not impact the larger trading community."”
financialexpress.com
Sources
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