If you were watching the market around 3:15 pm today, the Nifty looked headed for a much sharper close in the red. The benchmark had remained under pressure for most of the session in today’s trading session.
But when the official closing numbers were announced, the picture looked very different.
The Closing Auction Session (CAS) lifted the Nifty’s settlement price by 152 points from its 3:15 pm level, helping the index reclaim the 24,600 mark. Even after the recovery, however, the benchmark still ended the day 159.40 points, or 0.64%, lower at 24,614.90, while the Sensex closed 210.08 points lower at 78,428.95.
It was Day 2 of the National Stock Exchange’s new Closing Auction Session for Futures & Options (F&O)-eligible stocks, and once again it left traders trying to understand why the official closing level looked so different from where the market was trading just minutes earlier.
A weak session, followed by a sharp recovery
The broader market remained under selling pressure throughout Tuesday as investors booked profits across several heavyweight stocks.
The Nifty spent most of the day trading lower after opening with a gap-down. However, during the 15-minute Closing Auction Session conducted after normal trading hours, the benchmark recovered around 152 points from its 3:15 pm closing level.
The sharp recovery was enough to push the final settlement above 24,600, although the index still ended lower compared with the previous day’s close.
This unusual movement created a noticeable difference between the market’s regular close at 3:15 pm and its final settlement price used for derivatives expiry.
What exactly is the Closing Auction Session?
From August 3, the NSE introduced the Closing Auction Session (CAS) in the equity cash segment for F&O-eligible stocks.
Under the revised framework, regular trading still ends at 3:15 pm. After that, the exchange conducts a 15-minute auction during which buy and sell orders are matched to determine an equilibrium closing price for eligible stocks.
Experts call it an adjustment phase
Market participants believe Tuesday’s movement reflected the market adjusting to the new system rather than any fundamental change in investor sentiment.
Vinod Nair, Head of Research, Geojit Investments, said “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. This has triggered forced square-offs of positions, particularly among retail investors, ahead of the 15 minutes blind derivatives window closing session.”
He added, “These appear to be initial teething issues in the new system and the exchanges and market regulator need to address the discrepancies. Currently, the impact is limited to the F&O segment of trading stocks and main indices. Importantly, these are not fundamental structural concerns and are likely to be brought under control. The broader economic and financial outlook remains solid and does not alter the view of long-term investors. The current volatility is expected to reverse as the exchanges return to their normal operating structure.”
Somil Mehta, Head of Retail Resaerch, Mirae Asset Sharekhan explained that “The divergence between the Nifty level at 3:15 pm and its final closing value is a natural outcome of the newly introduced Closing Auction Session (CAS). Under the earlier system, the official closing price was based on the Volume Weighted Average Price (VWAP) of trades executed during the last 30 minutes of trading. With CAS, however, the final closing price is determined through an auction conducted after 3:15 pm, where buy and sell orders are matched at a single equilibrium price that maximizes traded volume.”
Mehta pointed out that “While the market may take some time to adjust to this new mechanism, it is expected to strengthen market efficiency and align Indian markets more closely with global best practices. Over the longer term, the Closing Auction Session is expected to improve the quality of price discovery, make official closing prices more representative of actual market demand and supply, reduce the scope for end-of-day price manipulation, and better support portfolio valuation and index-linked investment products such as mutual funds and ETFs.”
Technical experts say buying emerged at lower levels, but CAS changed the final picture
Technical analysts also pointed out that Tuesday’s chart looked very different because of the new closing auction mechanism.
Sudeep Shah, Head – Technical and Derivatives Research at SBI Securities, said “On Tuesday, the benchmark index Nifty opened with a gap-down and remained under pressure for most of the trading session, gradually drifting lower. However, the CAS settlement price was 152 points higher than the 3:15 PM closing level, helping the index reclaim the 24600 mark. The Nifty eventually settled at 24615, down 0.64% for the day. Technically, the session resulted in the formation of a small-bodied candle with a long lower shadow, indicating buying interest emerging at lower levels.”
His observations suggest that while the market remained weak for most of the session, buyers stepped in near the day’s lows. At the same time, the newly introduced Closing Auction Session (CAS) significantly lifted the benchmark’s final settlement price, making the closing levels look very different from where the index was trading at 3:15 pm.
What did the NSE say?
The National Stock Exchange (NSE) said it has already made changes to improve transparency during the auction process.
According to the exchange, “On a beta basis, nseindia.com has been modified to provide real time information on indicative equilibrium price in addition to stocks under CAS for index during closing auction session CAS based on unmatched orders in the Index graphs also. Over a period, we plan to make the same arrangement permanent.”
The exchange further said “NSE member terminals will continue to have the real time details available as before for CAS. Final equilibrium price will be published after matching all orders at the end of Closing Auction Session.”