CAS: Nifty Falls 1.2% as F&O Expiry Triggers Sharp Closing Auction Volatility

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Nifty briefly fell 2.2% to 22,879 during the indicative closing period before recovering some losses.
Bank Nifty dropped more than 1,400 points intraday and closed 1.43% lower.
SEBI is reviewing the Closing Auction Session methodology but has said the framework will remain in place.

Mumbai: Indian equity markets witnessed sharp volatility during Tuesday’s F&O expiry, extending a trend observed since the introduction of the Closing Auction Session (CAS) framework.

During the indicative closing period, the Nifty dropped to an intraday low of 22,879, marking a decline of 2.2 per cent. The index later recovered part of the losses before the final close.

Bank Nifty also experienced significant swings, falling more than 1,400 points during the session.

Nifty, Bank Nifty Recover From Intraday Lows

The Nifty ended the session at 23,118.6, down 279.5 points or 1.2 per cent.

Bank Nifty settled at 55,794.75, declining 811.8 points or 1.43 per cent. The banking index had earlier fallen to 55,196, representing a decline of more than 2 per cent.

The Sensex also closed lower at 74,003.82, down 777.94 points or 1.04 per cent.

Index	Closing Level	Change
Nifty	23,118.6	-1.20%
Bank Nifty	55,794.75	-1.43%
Sensex	74,003.82	-1.04%

Closing Auction Session Linked to Expiry-Day Volatility

The Closing Auction Session (CAS) was introduced on August 3 for stocks that have futures and options contracts.

Under the framework, a short auction is conducted at the end of the regular trading session to determine the closing price of stocks.

Since its introduction, market participants have reported increased volatility in derivatives prices on expiry days, particularly during the closing auction period.

The sharp price movements have led the market regulator SEBI to examine the mechanism and consider ways to reduce volatility associated with expiry-day settlement prices.

SEBI Reviews CAS Methodology

SEBI Chairman Tuhin Kanta Pandey said earlier in September that the regulator was reworking the methodology used to determine closing prices under the recently introduced CAS for derivatives contracts on expiry days.

Pandey also acknowledged that the rollout of the CAS framework across jurisdictions initially faced challenges, particularly related to liquidity.

SEBI Says CAS Framework Will Stay

Despite the concerns surrounding expiry-day volatility and initial liquidity challenges, the SEBI chairman has indicated that the CAS framework is here to stay.

Pandey said initial liquidity was an issue following implementation but added that liquidity builds over time.

The regulator is therefore focusing on changes to the methodology rather than abandoning the framework.

F&O Expiry Keeps Market Volatility in Focus

Tuesday’s sharp movement in the Nifty and Bank Nifty once again brought attention to volatility during the F&O expiry session.

While both indices recovered part of their intraday losses before closing, the significant swings during the indicative closing period have added to the ongoing discussion around the impact of the Closing Auction Session on derivatives settlement prices.

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