A circular by the market regulator, the Securities and Exchange Board of India (SEBI), on the newly implemented Closing Auction Session (CAS) drove shares of brokerage companies, as well as those of the BSE, higher in intraday trading on Friday, 4 September.
Shares of Angel One surged nearly 8% during the session on the NSE, followed by a 5% jump in those of BSE. Billionbrains Garage Ventures (Groww) share price rose nearly 3%. Motilal Oswal Financial Services shares also saw a nearly 3% gain, while Nuvama Wealth Management shares climbed over 1%.
What did SEBI say about CAS?
On 3 September, the said it would issue a consultation paper proposing changes to the CAS methodology, which was implemented to determine settlement prices for derivative contracts.
SEBI introduced the Closing Auction Session (CAS) in the equity cash segment from 3 August for the determination of the closing price of securities.
Since its implementation, the market regulator has closely engaged with various stakeholders, including stock exchanges, brokers, software vendors, mutual funds, industry associations, and FPIs, to facilitate smooth implementation and address operational and other issues arising during the initial period of adoption.
SEBI underscored that among the significant issues raised by stakeholders was related to the determination of settlement prices of derivative contracts on expiry based on the closing price determined through CAS.
“Having considered the experience of the initial period of CAS implementation and the feedback received from various stakeholders, SEBI may be proposing certain changes in the methodology for determination of settlement prices of derivative contracts for which a consultation paper will be issued in about a week,” said the market regulator.
Under the CAS framework, the closing price is set by matching the maximum number of buy and sell orders in the last fifteen minutes of a trading day.
The closing price arrived at through the auction session is also used as the basis for determining settlement prices for derivative contracts on expiry.
Market participants have been highlighting the unpredictable price swings and market uncertainty due to the CAS framework. For instance, on Thursday, which is the BSE expiry day, the Sensex plunged about 2,100 points in the first five minutes of the auction session, only to recover soon after. The index ultimately closed 417 points lower at 76,152.86.
“Since CAS launched on August 3, the closing price used to settle expiring derivative contracts comes from a discrete auction, not a live traded price. For roughly ten to fifteen minutes before the close, index derivatives keep trading continuously while the underlying cash market has already stopped executing trades. The number shown during that window, the Indicative Equilibrium Price, is a projection, not a transaction — yet derivatives price and eventually settle against it,” Shai Coelho, Founder of Vtrender, noted.
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