Closing auction session sees muted participation on Day 1, volumes likely to pick up: Goldman Sachs
Mumbai, August 4
The introduction of the Closing Auction Session by the National Stock Exchange and Bombay Stock Exchange for stocks with underlying derivative contracts witnessed limited participation on its first day, although Goldman Sachs expects activity to increase in the coming sessions as institutional investors gradually adapt to the new mechanism.
In a report analysing the first day of implementation, Goldman Sachs said the median auction volume participation across all eligible stocks stood at just 1.7 per cent, significantly lower than the median 16.3 per cent participation seen in the previous one month during the conventional market close.
"The median auction volume participation of all stocks in the close auction was 1.7% today vs median of 16.3% in past 1m close. This was also in line with our pad today where most institutional clients opted to stay out of the auction," the report said.
The Closing Auction Session replaces the earlier methodology of determining closing prices for 208 derivative-linked stocks using the volume-weighted average price (VWAP) of the final 30 minutes of trading.
Despite the subdued participation, Goldman Sachs believes volumes are likely to improve as market participants become more familiar with the new framework.
"Considering it was just the first day, would expect this to pick up over the coming days," the report noted.
According to the analysis, the National Stock Exchange accounted for the overwhelming majority of auction volumes, while participation on the BSE remained negligible at around 1.5 per cent, broadly in line with the exchanges' usual trading volume split.
The report observed that the median stock price movement during the auction was 53 basis points. However, several stocks closed at the upper or lower end of the permitted 3 per cent price bands due to relatively thin liquidity during the auction.
These sharp price movements also influenced the benchmark indices. Goldman Sachs said the auction led to a notable late-session rise in the Nifty index.
"The outsized moves in the auction resulted in a sharp 0.8% uptick in Nifty - eventually ending the day with gains of 1.6% at 24774 (highest closing since early Mar'26) - coinciding with the 200DMA level too," the report said.
The brokerage also highlighted an important disconnect between the cash and derivatives markets. While the equity market concluded with the closing auction, derivatives trading continued for another 10 minutes, resulting in futures prices not fully reflecting the revised closing prices of several underlying stocks.
"Future prices of multiple stocks along with the headline index lagged / failed to catch up to the underlying's move derived from the auction. These prices rather better represent the actual prices and would theoretically be used as bases for tomorrow's open," Goldman Sachs added.
The report further identified notable divergences between cash market closing prices and futures, with Bajaj Auto and Titan recording nearly 3 per cent positive divergence, while CG Power registered a 3 per cent negative divergence against futures prices.
— ANI
Reader Comments
The 10-minute gap between cash market close and derivatives close seems like a design flaw. If futures prices don't reflect what happened in the auction, retail investors like us get confused the next morning when we see gap-up or gap-down openings. SEBI should consider syncing both markets.
Goldman Sachs says volumes will pick up, but I have my doubts. The 1.7% participation vs 16.3% earlier is a big drop. Institutional players are skeptical because thin liquidity can lead to manipulated closing prices. Saw it today - some stocks hit the 3% band just because of a few trades. 🤔
As a long-term investor, I actually like this new system. The old VWAP method meant institutional players could game the closing price in the last 30 minutes. This auction method prevents that to some extent. Yes, day 1 was slow, but change always takes time. Let's not judge it on day one!
The Nifty going up 0.8% in auction alone shows how powerful this mechanism is. But the disconnect with futures is concerning. I trade futures and options and the 10-minute gap creates arbitrage opportunities - but also risks if you're not careful. Hope the exchanges address this quickly.
Interesting how Indian markets are adopting global best practices. The closing auction is standard in many exchanges worldwide. Early adoption always has a learning curve. The 53 basis points median price movement is acceptable in my view. Kudos to NSE and BSE for this progressive step forward.
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