Tuesday’s opening bell had an unusual twist: the Nifty50 and BSE Sensex parted ways instead of moving in sync, leaving investors wondering about the rare phenomenon. While Nifty 50 was down 159.25 points, or 0.64%, at 24,615.00, BSE Sensex was up 166.15 points, or 0.21%, at 78,805.18 around 9:42 am.Explaining the move, the National Stock Exchange (NSE) said that was the result of the newly introduced Closing Auction Session (CAS) mechanism and not a market anomaly. According to the exchange, the divergence comes after 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.
Why BSE Sensex and NSE Nifty50 parted ways?
According to NSE, the benchmark indices behaved differently because there is no continuous order matching during a key part of the auction process.The exchange said 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.It said, “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.”The exchange added that indicative index values based on equilibrium prices are displayed alongside quotes on its website during the auction period.Another reason for the divergence, the NSE said, is that the Closing Auction Session and the continuous trading session have 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,” the release said.
What changed from August 3?
The NSE said 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.In a press release, the exchange said, “Closing Auction Session was implemented under the guidance of SEBI as it promotes transparency and fair and robust price discovery.”From August 3, the 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.The CAS runs from 3:15 pm to 3:35 pm, while trading in the equity derivatives segment continues until 3:40 pm.
How is the closing price decided now?
Under the new system, the closing price is determined using an equilibrium price mechanism. The exchange said the price at which the maximum executable volume is achieved becomes the closing price, with market orders receiving priority over limit orders.The NSE said the inaugural Closing Auction Session saw encouraging participation.According to the exchange, 515 trading members placed orders on behalf of 56,773 unique PANs during the first CAS session. That compares with 403 trading members and 42,822 unique PANs in Monday’s pre-open session.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.
