India’s BSE Sensex plunged nearly 3% during a newly introduced Closing Auction Session on derivatives expiry day, triggering extreme volatility, massive intraday swings, and fierce outcry from traders.
Wild Swings and Sudden Crashes During the Closing Auction
The first monthly expiry of derivatives contracts on BSE after the introduction of Closing Auction Session, popularly known as CAS, sensex and Bankex, BSE’s banking index, witnessed wild swings, triggering social media outcry. The sharp movement in indices and some of their constituents also gave rise to chances for some smart investors to make a killing. Between 3.18pm and 3.23pm on Thursday, within a five-minute window after the start of CAS on BSE, sensex crashed over 2,200 points. Within the next seven minutes—between 3.23pm and 3.30pm—it recovered nearly 2,000 points. It finally closed at 76,934 points, down 539 points from its Wednesday close.
India’s BSE Sensex briefly plunged about 3% during a 20-minute closing auction on Thursday, intensifying concerns about thin liquidity and possible manipulation during the newly introduced closing-price window. The 30-stock index fell to 74,983.19 points, or 2.9% below its level at the end of continuous trading at 3:15 p.m., according to exchange data. It recovered nearly all of the decline and closed 0.7% lower. The auction-based mechanism, introduced earlier this month for more than 200 stocks, has faced criticism after unexplained benchmark swings. India adopted the system to align its markets with global standards and curb price rigging. A 75,000-strike Sensex put option expiring Thursday rose 4,800% during the auction before giving back its gains by the close. The move was linked to orders in an index-heavy stock reaching the 3% lower limit allowed under the mechanism.
On BSE, some of the leading stocks which are also sensex constituents witnessed huge volatility. During CAS, Reliance Industries, which has the highest weight in sensex, slid from Rs 1,289 to Rs 1,250, a drop of 3% within seven minutes, but then recovered equally sharply to close at Rs 1,286. Similar price swings were seen in HDFC Bank, ITC, Bharti Airtel and others.
Contrasting Trading Volumes Between NSE and BSE
On NSE, things were relatively quiet. Between 3.18pm and 3.22pm, Nifty slid over 100 points but then recovered about 60 points to close 117 points lower at 24,091 points. Snapping the four-day gaining streak, benchmark stock indices Sensex and Nifty closed lower on Tuesday following the introduction of a new auction mechanism for shares having futures and options (F&O) contracts. Paring early gains, the 30-share BSE Sensex declined by 210.08 points, or 0.27 percent, to settle at 78,428.95. During the day, the benchmark hit a high of 79,143.15 and a low of 78,211.87, gyrating 931.28 points. The 50-share NSE Nifty closed lower by 159.40 points, or 0.64 percent, at 24,614.90 after trading in the negative territory throughout the day. During intraday trade, it edged lower by 346.35 points, or 1.39 percent, to hit a low of 24,427.95. Market benchmarks traded on a mixed note in the early session on Tuesday, a day after the introduction of the new auction mechanism. Sensex and Nifty on Monday ended with an unusual aberration after stock exchanges introduced the new auction mechanism.
The NSE recorded a turnover of Rs 1,542.2 crore on the second day of the closing auction session on Tuesday, while the turnover on the BSE stood at Rs 9.35 crore. On Monday, the initial trading turnover was Rs 1,276.2 crore for the NSE.
Trader Backlash and Regulatory Context
On Aug 3, Sebi introduced CAS, a new process of discovering the closing price of stocks that is used in several developed markets, aimed at eliminating chances of price manipulation. CAS is now valid for all those 200-odd stocks on which equity derivatives contracts are traded. For the rest of the non-derivatives stocks, the old system of volume-weighted average price (VWAP) continues. Since the launch of CAS, however, the two leading indices—Nifty and sensex—have witnessed extreme volatility and wide price variation between 3.15pm, just before CAS starts every session, and 3.30pm, when it ends.
Traders continued to cry foul. On X (formerly Twitter), one trader pointed out that if someone had bought sensex put options of 76,500 worth Rs 1 lakh at 3.15pm and exited at 3.20pm, the trader’s profit in just five minutes would have been Rs 44 lakh.
Recent Enforcement Actions Loom Over Market Transparency
A week ago, Copthall Mauritius, a JP Morgan arm, was caught by Sebi, manipulating sensex and its constituents and for making illegal gains worth nearly Rs 3 crore. Sebi had alleged that domestic broker, Mansi Stock & Share Broking, indulged in a similar manipulation strategy. The regulator has banned Copthall and Mansi Broking (for proprietary trades only) from the market and ordered the two to disgorge illegal gains worth nearly Rs 3.8 crore.
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