Closing auction keeps traders on edge as divergence persists
Mumbai: The divergence between Sensex and Nifty levels persisted for the second day on Tuesday as market participants continued to grapple with confusion around the
Mumbai: The divergence between Sensex and Nifty levels persisted for the second day on Tuesday as market participants continued to grapple with confusion around the rollout of the closing auction system launched the previous day. The expiry of Nifty weekly futures and options contracts on Tuesday added to the complexity, with several traders taking to social media complaining of unexpected moves in derivatives prices and losses on their positions.The Sensex ended at 78,428.95, down 210.08 points or 0.27%, while the Nifty closed at 24,614.90, down 159.40 points or 0.64%, coming off early lows. At the day's lowest levels, the Sensex was down 0.5% and the Nifty was down 1.4%. The partial recovery happened in the last five minutes of trading.Read more: Nifty's value doesn't change suddenly at 3:30 pm, NSE clarifies amid CAS confusionThe differences in the intraday and closing levels over the past two days follow the introduction of the closing auction system, which changes the way the official closing prices of stocks traded in the futures and options (F&O) segment are determined. The closing prices are used to calculate index closing levels, value mutual fund portfolios and settle derivatives contracts.132881377Trading Volumes"The main cause of the last-minute spike in the Nifty appears to be participation in the CAS (closing auction system) session, or possibly the lack of it because of the confusion," said Kamlesh Shroff, president, Association of NSE Members of India.
"While NSE's CAS volumes were higher compared to yesterday, the number of UCCs (unique client code) traded during the CAS fell on Tuesday, suggesting fewer participants had a larger influence on the Nifty's close. This makes it easier for large orders to move the market."The fall on Tuesday is a reversal of the previous day's upmove when a late surge of 0.8% at around 3.28 pm led to the Nifty surging 1.6% at close, while the Sensex ended 0.7% higher, creating an unprecedented variance.The new closing auction process, limited to the 200-odd stocks in the F&O segment, lasts about 20 minutes, from 3.15 pm to around 3.35 pm. During this period, the exchange first collects buy and sell orders and then matches them to determine a single official closing price for the stockUnder the old system, the closing price was based on the volume-weighted average price (VWAP) of trades during the last 30 minutes of trading. Unlike the earlier system, the new mechanism concentrates buy and sell orders into a single closing auction, making the closing price more sensitive to large orders.The shift to the closing auction system has resulted in a drop in trading volumes in the last part of the trading session, said brokers.
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