CAS Drama: Expiry-Day Volatility Persists As Nifty, Bank Nifty See Sharp Swings

(MENAFN- IANS) Mumbai, Sep 15 (IANS) Equity markets witnessed sharp volatility during the futures and options (F&O) expiry session on Tuesday extending a trend seen 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, down 2.2 per cent.

Similarly, the banking index Bank Nifty fell more than 1,400 points to 55,196, a decline of more than 2 per cent.

However, both indices recovered part of their losses by the close.

The Nifty ended at 279.5 points or 1.2 per cent lower at 23,118.6, while Bank Nifty settled at 811.8 points or 1.43 per cent lower at 55,794.75.

Another headline index – Sensex -- settled at 74,003.82, down 777.94 points or 1.04 per cent.

The Closing Auction Session framework was introduced on August 3 for stocks with futures and options contracts.

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

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

The sharp swings have prompted a review of the mechanism by market regulator SEBI, which is examining ways to reduce volatility linked to expiry-day settlement prices.

However, SEBI Chairman Tuhin Kanta Pandey clarified -- earlier in September -- that the market regulator is reworking the methodology for determining the closing prices under the recently launched closing auction session (CAS) for derivatives contracts on expiry days, while acknowledging that the rollout of CAS across jurisdictions faced initial challenges, particularly around liquidity.

But he also stated that the CAS framework is here to stay. Initial liquidity was an issue after implementation. However, liquidity builds up over time, says the SEBI chairman.

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