Kirit Somaiya, former Member of the Lok Sabha and vice president of the Bharatiya Janata Party's Maharashtra unit, has sought the Securities and Exchange Board of India's (SEBI) attention over the sharp swings in the Sensex during the Closing Auction Session (CAS) on August 27. The Sensex plunged more than 2,000 points within minutes during the CAS on Thursday, falling from around 77,200 at 3:17 pm to nearly 74,983 at 3:23 pm.
7%, lower at 76,934. India changed how closing prices are determined from August 3.
Instead of calculating the close using the volume-weighted average price (VWAP) during the final half-hour of trading, exchanges introduced a short Closing Auction Session, in which buy and sell orders are aggregated, and a single equilibrium price is discovered. In a communication seeking attention to the August 27 movement, Somaiya asked whether the sharp intra-session swing pointed to a weakness in the CAS mechanism and called for an inquiry and action."
He also asked whether the move could have been linked to any deliberate attempt to undermine the implementation of CAS, while calling on SEBI to examine the matter." SEBI must not take this CASUALLY," he said.
" If it is a weakness, then the officials who drafted it should owe an explanation. If it is done knowingly, is it healthy?
"" Shockingly, such things happened during the process of having a healthy system," Somaiya said, adding that he wanted "not only inquiry but action also." Liquidity concerns after 3:15 pmAlong with his communication, Somaiya shared an observation that attributed the sharp movement partly to a lack of liquidity after 3:15 pm."
15. 15 pm.
15 pm doesn't find liquidity and hence volatility," the observation said. The accompanying note proposed temporarily suspending CAS and reintroducing it after a redesign, citing several concerns around liquidity, price discovery and the interaction between the cash and derivatives markets.
, after which the market moves into a separate auction. m.
The note argues that this structure removes continuous-market liquidity before the auction begins. , the continuous price-discovery mechanism is stopped and replaced by the auction order book, which the note describes as materially shallower.
Separate auctions on NSE, BSEThe note also raises concerns about the fragmentation of closing liquidity between NSE and BSE. It points out that the same security can undergo separate closing auctions on the two exchanges, with separate order books, imbalances and potentially different equilibrium prices.
