The newly introduced closing auction session (CAS) made its debut on the stock market today with a 200-point spike in Nifty 50. The increase from 24,573 to 24,774 was seen within a two-minute span around 3:30 PM during the closing auction.
Experts varied in their assessment of this spike in the index. Pankaj Pandey, head of research at ICICI Securities called the event abnormal, adding that while the prices in cash segment saw a rise, such a sharp upward movement was not observed in corresponding call option prices. He believes this movement is a technical glitch and said that he is awaiting instructions from the exchanges for better clarity on the matter.
Market expert Arun Kejriwal also called the spike an anomaly and said that some of its impact could reduce in the initial part of the next trading session. He added that Nifty has shown significant strength during entire session on Monday and expects it to remain strong going forward if no geopolitical uncertainties arise.
Meanwhile, a market expert requesting anonymity attributed the sudden spike during CAS to aggressive buying orders in stocks with higher weight in the index adding that the participation by institutions and index funds also added to the spike.
The newly introduced closing price mechanism includes a 20-minute closing auction session from 3:15 PM to 3:35 PM on all trading days with an aim to provide better price discovery. In its initial phase of implementation, the CAS is currently applicable only to determine the closing prices of stocks in the cash segment for which derivative contracts are available.
The eligible stocks enter the CAS at 3:15 PM on all trading days at a volume weighted average price calculated for all trades between 3 PM to 3:15 PM. This becomes the reference price for the CAS, with a price band of +/- 3% taken during the entire CAS.
The session takes closing price as the equilibrium price at which highest volume of orders can be executed from the existing buy/sell orders. Following this, all orders carried forward from continuous trading session are matched at this equilibrium price with market orders receiving higher priority over limit orders.
Going forward, some market experts expect CAS to have a near-term impact in volatility of the index. Om Mehra, technical analyst at Samco Securities asked investors to remain cautious despite the positive broader trend and said that Nifty may remain volatile in the upcoming sessions as the market adjusts to the new pricing mechanism.