FILE PHOTO: People talk inside the National Stock Exchange (NSE) in Mumbai, India, August 14, 2025. REUTERS/Francis Mascarenhas/File Photo

| Photo Credit:

The sharp swings in the Nifty 50’s official closing value for a second straight session on Tuesday have intensified the debate around SEBI’s newly introduced Closing Auction Session (CAS), with settlement prices for weekly derivatives expiry getting affected even after regular trading had ended.The Nifty 50 closed at 24,615, down 159 points, or 0.64 per cent. However, the index was trading around 24,463 before the closing auction and recovered 151 points during the CAS window. The Sensex, which was less affected by the new mechanism, ended 0.3 per cent lower at 78,429.On Monday, the first day of CAS, the Nifty’s official close had jumped nearly 200 points during the auction session. Continuous trading in F&O stocks ends at 3:15 pm, after which their official closing prices are discovered through CAS. Since settlement of Nifty derivatives is based on the benchmark’s official closing value, Tuesday’s auction directly affected weekly expiry settlements, catching many traders off guard.Under CAS, buy and sell orders are collected after regular trading hours and matched at a single equilibrium price. Limited liquidity and order imbalances can lead to sharp swings in the final settlement price, resulting in heightened volatility.Traders said the auction altered the expected decay in options premiums after 3:15 pm. The Nifty 24,600 put option, which was trading above Rs 100 late in the session, expired worthless as the index settled higher, while the Nifty 24,500 call option rose nearly five-fold by settlement.Vinod Nair, Head of Research at Geojit Investments, said the gap between the pre-auction and final closing levels of Nifty stocks and the index, along with the divergence from the Sensex, suggested the new system was creating excessive volatility.“This has triggered forced square-offs of positions, particularly among retail investors, ahead of the 15-minute blind closing auction window after derivatives trading has ended,” he said.Nair added that these appeared to be initial teething issues in the new system and that exchanges and SEBI needed to address the discrepancies.Emailed queries to SEBI did not elicit a response.The back-to-back swings have also revived concerns raised during SEBI’s consultation process. While foreign portfolio investors (FPIs) had largely supported the move, saying it aligns India’s closing process with global markets and benefits passive investors, several domestic brokers and market participants had questioned whether liquidity would be sufficient for efficient price discovery.“Volumes were light as the market is digesting a completely new mechanism. It will take the local community a while to get used to CAS, which is completely in line with what FPIs understand. The more participants get used to the CAS, the less volatility they will experience,” an FPI source said.Broking industry body ANMI also urged caution against drawing conclusions from the first two sessions.“We believe participation will improve over the next few expiry cycles and are engaging with SEBI and the exchanges to strengthen the framework,” the association said.Kamlesh Shroff, ANMI’s President, said: “Every new market mechanism requires time to evolve. The CAS is a globally accepted framework. We expect participation and liquidity to improve progressively as brokers, institutional participants and retail investors become more familiar with the process.”NSE said the mechanism had functioned as designed and that participation on the first day was encouraging. According to the exchange, 515 trading members placed orders on behalf of 56,773 unique PANs during the inaugural CAS session, with participation expected to increase over time.Published on August 4, 2026