The argument is against forcing a single mechanism to serve two structurally different purposes
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Last Thursday afternoon, during the 15 minutes that now determine India’s closing prices, BSE Ltd’s Closing Auction Session (CAS) recorded turnover of ₹446 crore. On a regular trading day, it typically handles about ₹15 crore. That single session accounted for more than two-fifths of BSE’s total August closing-auction turnover. Two days before, the National Stock Exchange finished its monthly settlement with little turbulence. The closing auction totalled ₹1,377 crore — less than the turnover from a typical Tuesday a week prior. On the surface, the process seems to have managed NSE’s first monthly settlement effectively.Together, however, they lead to a more significant conclusion than a simple comparison of exchanges. A straightforward explanation is that this is primarily a liquidity issue: thin order books tend to jump, while deeper ones can absorb pressure. Nonetheless, the pattern of expiries reveals a more insightful story. The first weekly expiry under the new system was unsettled; the second was more disruptive and eventually led to a regulatory order. By the third expiry, activity had nearly stabilised. In just three weeks, participants seem to be adapting to the new auction mechanism.Then the monthly expiry occurred, and the pattern was disrupted. The key distinction isn’t between the NSE and BSE; it’s between weekly and monthly settlement cycles. Weekly index derivatives are settled in cash, with no share transfers — positions are simply adjusted through an accounting entry based on the closing price. Monthly expiry, however, is fundamentally different because, since 2018, India has employed physical settlement for single-stock futures and options, meaning actual share delivery is required (see Charts 1 and 2).This creates pressures that build over days. Margins rise, traders arrange securities, and positions are unwound. All this culminates in demand for a single settlement price at the end of the session. The CAS is therefore being asked to perform two jobs simultaneously: establish the market’s authoritative daily closing price and absorb delivery-related derivative unwinding — within just 15 minutes. The traditional expiry-day surge appears to have weakened, at least for weekly expiries. That is a real improvement, but it should not be mistaken for the disappearance of settlement pressure.The pressure has shifted. What was once spread over six hours is now compressed into the final 15 minutes, particularly at monthly expiry. That window is not yet deep enough to carry this burden reliably. Closing auctions account for about one per cent of India’s daily cash-market turnover. By contrast, on Euronext auctions represent more than a quarter of equity-market activity. India’s passive funds — the natural participants that can deepen the close — are still entering the mechanism. Regulators are rightly engaging with fund houses and have proposed to reform securities lending, which may improve the supply of stock into auctions. But these measures address participation. That does not answer a more fundamental question: what should the closing auction be designed to accomplish?The approaches abroadMature markets differentiate these functions. The US clears its oldest quarterly index contracts through a Special Opening Quotation the next morning, primarily to reduce pressure at the close. Its lighter, more frequent contracts settle at the close because the market can handle them. Britain, on the other hand, employs a separate Exchange Delivery Settlement Price auction at 10:10 a.m. on expiry day, halting continuous trading during that process. The underlying principle is clear: frequent, cash-settled contracts may settle at the close, whereas larger periodic settlements involving delivery and significant unwinding shall have their own dedicated mechanisms.India has implemented the first measure, and now it’s time to focus on the second. The CAS should continue to aim at establishing a reliable daily reference price for investors, passive funds, index providers, and valuation agencies. Weekly index derivatives can still settle during this session. In contrast, monthly contracts — especially physically settled single-stock derivatives — shall be transferred to a dedicated auction, either at the opening, similar to the US approach, or through a separate mid-session window, as in Britain.This is not an argument against CAS. The weekly data suggests the market is adapting faster than expected. The argument is against forcing a single mechanism to serve two structurally different purposes. A reliable closing price and derivative delivery settlement are distinct market products. Only one needs to be finalised at 3:30 p.m. If the monthly expiry continues to strain the auction, repeatedly testing its capacity will not solve the design problem. It’s time to redesign the door rather than test the frame.The writer is Partner, MCQubePublished on September 2, 2026
