NSE Closing Auction Session Week One: ₹1,200 Crore to ₹1,550 Crore in Early Volumes

India’s new Closing Auction Session completed its first week with traders adjusting to a different way of setting closing prices in the cash market. Early sessions showed thin participation and sharp last-minute price moves, while market participants flagged liquidity, arbitrage, and derivatives-market gaps as the main pressure points.

What the First Two Days Showed About CAS Volumes

Early CAS activity remained modest compared with the size of India’s broader cash market. Kamlesh Shroff, National President of the Association of National Exchange Members of India, said NSE saw about ₹1,200 crore of CAS volume on the first day and ₹1,550 crore on the second day, while BSE participation was considerably smaller.

Shroff said low early participation is natural when a new market mechanism is introduced and that participation generally grows as market participants learn the process and become more comfortable placing orders in the auction window.

Why the Closing Auction Session Started With Thin Liquidity

The Closing Auction Session is designed to improve closing-price discovery by using an auction mechanism rather than the last traded price in continuous trading. In practice, the first week showed that the mechanism needs enough participants on both sides for the closing price to settle smoothly.

Greater depth is needed on the opposite side of passive fund flows, since CAS is a closed-auction mechanism rather than a continuous price-discovery system.

— Venkatachalam Shanmugam, Partner, MCube

When depth is limited, larger trades can move the closing price, making broader participation essential for cleaner outcomes.

How the Cash-Derivatives Timing Gap Affected Traders

The biggest structural concern from the first week came from the split between the cash and derivatives markets. After 3:15 p.m., the cash market moved into the Closing Auction Session, but derivatives continued trading, leaving participants to manage two related markets under different conditions simultaneously.

Manjuri Mazumdar, who heads the sales trading desk at Emkay Global Financial Services, said this created a significant problem for arbitrage funds. Such funds need to execute both cash and derivatives legs together, and the CAS structure made that harder when one side entered auction mode while the other kept trading.

Why Arbitrage Funds and SLBM Are Part of the CAS Challenge

Mazumdar also pointed to India’s weekly options market and the relatively underdeveloped Securities Lending and Borrowing Mechanism as important differences from other Asian markets. The SLBM is the framework that allows participants to lend and borrow securities, often to support short-selling, hedging, and arbitrage strategies.

For arbitrage desks, the friction is practical. If liquidity thins during the closing auction while the derivatives market keeps moving, managing price differences between the two markets becomes considerably more complicated.

What Could Make the Closing Auction Session More Stable?

Named market participants did not call for CAS to be scrapped. Their focus was on participation, liquidity, and possible adjustments to how the auction works.

• Mazumdar said the framework could become more stable over the next 10 to 15 days as participants adapt
• She also said the market may need tweaks, especially around the price range within which prices can move during the auction window
• Shanmugam said liquidity will ultimately decide how well the mechanism works, with broader participation essential for cleaner price discovery

Final Outlook

Source: NDTV Profit