Business Today reported that Tuesday’s opening bell delivered an unusual twist in Indian equities: the Nifty50 and BSE Sensex moved in opposite directions instead of trading in sync. Around 9:42 am, the Nifty50 was down 159.25 points, or 0.64%, at 24,615.00, while the BSE Sensex was up 166.15 points, or 0.21%, at 78,805.18, according to the report.
Why the indices diverged
According to Business Today, the National Stock Exchange (NSE) said the divergence was the result of the newly introduced Closing Auction Session (CAS) mechanism and not a market anomaly. The exchange reportedly said the move followed an equally unusual gap between the spot and futures values of the Nifty and Bank Nifty in the previous session on August 3.
The clarification came after market participants flagged the difference between spot and futures prices during the final minutes of trading on Monday — the first day of the new closing price discovery framework, Business Today reported.
Business Today further reported that NSE said the benchmark indices behaved differently because there is no continuous order matching during a key part of the auction process. The exchange cautioned that the index graph displayed during the auction session should be interpreted carefully, as there is no continuous order matching between 3:15 pm and 3:30 pm.
“There is no sudden change in the Index at 3:30 pm, but the order collection, cancellation and matching follows a process and as there is no continuous order matching between 3:15 pm and 3:30 pm, the index value is constant as it is based on traded values.”
According to the report, the exchange added that indicative index values based on equilibrium prices are displayed alongside quotes on its website during the auction period.
A second reason, according to Business Today’s account of the NSE release, is that the Closing Auction Session and the continuous trading session maintain separate order books, allowing stocks to trade at different prices during the auction.
“Both the Exchanges have separate order books for CAS session similar to the continuous trading session and hence, the prices of the individual stocks are also different. As the index is calculated based on the prices determined of the individual stocks, the index values can also be different.”
What changed on August 3
Business Today reported that the Closing Auction Session was introduced under the guidance of the Securities and Exchange Board of India (SEBI) to improve transparency and make price discovery in the cash market more robust. The exchange’s press release stated, “Closing Auction Session was implemented under the guidance of SEBI as it promotes transparency and fair and robust price discovery.”
From August 3, closing prices of stocks with derivative contracts are no longer calculated using the volume-weighted average price (VWAP) from the last 30 minutes of continuous trading. Instead, they are determined through the Closing Auction Session, which runs from 3:15 pm to 3:35 pm, while trading in the equity derivatives segment continues until 3:40 pm, Business Today reported.
How the closing price is now determined
Under the new system, the closing price is determined using an equilibrium price mechanism. According to Business Today, NSE said the price at which the maximum executable volume is achieved becomes the closing price, with market orders receiving priority over limit orders.
First-day participation
The NSE said the inaugural Closing Auction Session saw encouraging participation. Business Today reported the following comparison between the first CAS session and Monday’s pre-open session:
| Metric | First CAS session | Monday pre-open session |
|---|---|---|
| Trading members placing orders | 515 | 403 |
| Unique PANs | 56,773 | 42,822 |
The exchange said participation levels were encouraging for the first day of implementation and are expected to rise further as market participants become more familiar with the new mechanism.
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