The Nifty was trading at around 22,717.70 at 3:19:59 pm, before the closing auction session began. The benchmark index then spiked 2% to 23,026 at 3:20:30 pm. It subsequently pared gains and closed at the day’s high, excluding closing auction session (CAS) levels, at 22,776.
While Tuesday marked Nifty’s expiry day, Sensex too was not shy of sharp swings. Sensex rose to 73,259 during the closing auction session, before paring some gains but closing 125 points higher than pre-CAS level at 73,068.
CAS volatility
Typically, markets see heightened volatility on monthly expiry days. However, CAS has led to such wild swings in the benchmark indices at the fag end of the sessions. Sebi introduced the new Closing Auction Session (CAS) in August, changing the way closing prices are calculated for stocks included in the futures and options (F&O) segment.During the 20-minute auction window, buy and sell orders for eligible stocks are collected and matched at a single equilibrium price. This mechanism is aimed at improving price discovery and reducing the impact of last-minute trades on closing prices.
While the intentions were noble, the CAS system has been leading to massive volatility especially on expiry days. While market regulator Sebi has remained firm that CAS is here to stay, the market regulator may partly reverse some rules related to the Closing Auction Session (CAS), Reuters reported citing people familiar with the matter.
Sebi to reverse CAS rules?
Sebi will likely stop using closing auctions to calculate derivatives settlement prices for at least one year and instead use the volume-weighted average price of the last 30 minutes of trading to determine the derivative pricing, the report said. This would mark a partial reversal of the new mechanisms introduced to set closing prices of key stocks and derivative contracts.The report added that the closing auction will still be used to determine the end-of-day price for underlying stocks in the less liquid cash market. The market regulator will likely announce these changes by the end of this month, the report further said.
This comes after Sebi during the weekend said it received 20,000 comments on its consultation paper seeking views on proposed changes to CAS, market timings and the settlement methodology for derivatives contracts.
Also read | CAS U-turn ahead? BSE, Groww, NSE, other capital market stocks jump up to 4% amid buzz around Sebi tweaking F&O settlement rules
Jefferies sees CAS issues easing
Jefferies recently said that issues related to CAS may finally be easing on Dalal Street, with options volumes recovering in September after a sharp drop in August. The international brokerage said industry-wide September index options premium ADTO stood at Rs 68,100 crore, broadly in line with July levels, before CAS was introduced on August 3.Groww could benefit from a recovery in order volumes, a pick-up in its MTF book and a rise in commodity trading in September, Jefferies said. The brokerage named Groww, MCX, KFIN and Nuvama as its top capital market picks.
Also read | CAS chaos eases? Jefferies names top stock picks as options volumes recover, IPOs and commodities gain traction
Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
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