Mumbai, Aug 4 — The sharp divergence in benchmark and stock closing prices following the implementation of the Closing Auction Session (CAS) has triggered fresh debate among market participants, with investors taking to social media to question the reliability of end-of-day price discovery.
The new mechanism, introduced by the Securities and Exchange Board of India (SEBI), has led to noticeable differences in closing prices between the NSE and BSE.
The debate intensified after the first few trading sessions under the new framework witnessed sharp divergences in official closing prices, leaving many investors confused and sparking widespread discussion on social media platforms.
According to reports, the strongest support for introducing the Closing Auction Session came from global passive investors.
The reports added that foreign funds wanted India's market structure to align with international practices, enabling investors to execute trades at the same prices used for benchmark index calculations and thereby reduce tracking error.
However, domestic institutions, brokers, traders and exchanges had expressed reservations during the consultation phase.
They argued that Indian markets lacked the institutional depth and two-sided liquidity required for an auction-based closing mechanism to deliver efficient and reliable price discovery, the report stated.
However, the new framework has produced noticeable divergences in stock closing prices across exchanges.
On Tuesday, Trent shares closed at Rs 3,070 on the BSE, up 1.15 per cent, while the stock ended at Rs 3,107.70 on the NSE, registering a gain of 1.89 per cent.
Similarly, Bharat Electronics Ltd (BEL) closed 0.94 per cent higher at Rs 392 on the BSE, whereas the stock ended 0.17 per cent lower at Rs 391.50 on the NSE.
Bajaj Finance settled 1.06 per cent higher at Rs 1,153 on the BSE but finished 0.35 per cent lower at Rs 1,149 on the NSE.
Mahindra & Mahindra also displayed a substantial difference in closing levels. The stock ended at Rs 3,405 on the BSE, up 0.58 per cent, while it closed at Rs 3,433 on the NSE, gaining 0.13 per cent. Similar discrepancies were observed in several other heavyweight stocks, including Bajaj Finserv, Titan, TCS and UltraTech Cement.
The divergence has also been visible at the index level. Investors have closely tracked the varying movements in the Nifty and Sensex since the new system came into force.
In the previous session, the Nifty had surged roughly 1.6 per cent, while the Sensex gained only about 0.7 per cent.
Market experts believe the transition may be causing temporary disruptions. According to one analyst, Tuesday's weekly derivatives expiry, coupled with the implementation of the new methodology for determining futures and options closing prices, distorted market trends and amplified volatility.
"Tuesday’s weekly expiry, combined with the implementation of the new mechanism for determining F&O closing prices, has led to a distortion in market trends. The significant gap between the 3:30 p.m. and 3:40 p.m. closing prices of Nifty stocks and the index, along with the divergence with Sensex, suggests that the new system is not functioning as intended, resulting in heightened price volatility,” an analyst stated.
“This has triggered forced square-offs of positions, particularly among retail investors, ahead of the 15 minutes blind derivatives window closing session,” the analyst added.