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We imported the auction, but we left out the brakes

By Sohail Khan 29 August 2026, 2:15 pm

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We imported the auction, but we left out the brakes
Synopsis

India’s Closing Auction Session (CAS) was introduced to improve price discovery, but recent sharp swings have exposed gaps in its safeguards. Jimeet Modi argues that allowing order cancellations until the auction ends can leave markets vulnerable to manipulation, calling for stronger controls, deeper liquidity and better protection around index-level settlement prices.

We imported the auction, but we left out the brakes<br>

Every trading day ends with a single number: the closing price. It looks innocuous. It is anything but.

That number determines mutual fund NAVs, influences the Nifty and Sensex, and settles expiry-day derivatives. If the closing price is distorted, the consequences do not end with traders. They travel quietly through the financial system.

On August 3, India changed how that number is determined. Instead of calculating the close from the average price during the last half-hour of trading(VWAP), exchanges introduced a short Closing Auction Session (CAS), in which buy and sell orders are aggregated, and a single equilibrium price is discovered.

The concept is hardly radical. London, New York and Hong Kong have used closing auctions for years. But there is an important lesson in their experience: the auction is only as robust as the safeguards surrounding it.

India's experience has already underlined that point.

On August 13, the ninth trading day of CAS and a Sensex weekly expiry, the auction's indicative price spiked within seconds, followed by two more sharp moves. On August 19, SEBI passed an interim order finding prima facie manipulation and impounding the alleged gains.

The order describes two parties. One allegedly placed an aggressive order that pushed the indicative price higher, in a manner linked to its expiry-day options positions. Another allegedly placed large sell orders across eight Sensex constituents at prices substantially below the prevailing market, potentially pulling the indicative price lower, and cancelled them moments before the auction ended.

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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

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