Closing auction: Nifty swings on Day 2 raise eyebrows
Weekly expiry turns auction-driven price moves into real gains and losses, as market participants debate liquidity, price discovery
The Nifty 50's closing value experienced sharp swings on Tuesday, the second consecutive day, which has sparked debate about the newly introduced Closing Auction Session (CAS) by SEBI. Despite regular trading ending, settlement prices for weekly derivatives expiry were still affected by the auction. The index closed at 24,615, down 159 points or 0.64 percent, but had previously traded around 24,463 before the auction.
On Monday, the first day of CAS, the Nifty's official close jumped nearly 200 points during the auction. The Sensex, less affected by the new mechanism, ended 0.3 percent lower at 78,429. Limited liquidity and order imbalances during CAS can lead to volatility. Traders noted that the auction altered the expected decay in options premiums after 3:15 pm, with certain options expiring worthless or rising significantly.
Vinod Nair, Head of Research at Geojit Investments, suggested the new system was causing excessive volatility, leading to forced square-offs of positions, particularly among retail investors. SEBI did not respond to inquiries. The back-to-back swings have reignited concerns raised during SEBI's consultation process. While foreign portfolio investors supported the move, domestic brokers and market participants questioned if liquidity would be sufficient for efficient price discovery.
ANMI, a broking industry body, urged caution against concluding from the first two sessions, expecting participation and liquidity to improve as the market becomes more familiar with CAS. The National Stock Exchange (NSE) reported encouraging participation on the first CAS day, with 515 trading members placing orders on behalf of 56,773 unique PANs.
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