Sensex plunges over 2,100 points in 3 minutes; what happened in final 5 minutes?

The benchmark BSE Sensex fell more than 400 points in the final five minutes of trading, between 3:25 pm and 3:30 pm on Thursday.

At 3:25 pm, the 30-share index was at 76,554.20. By 3:30 pm, it slipped to 76,152.86, marking a decline of over 400 points during the five-minute period. Sensex eventually closed at 76,152.86, down 417.49 points or 0.55 per cent, from its previous close of 76,570.35.

The volatility was even higher a few minutes earlier in fag-end trade. At 3:17 pm, Sensex was trading around 76,510.32, before plunging to 74,373.29 by 3:20 pm -- a steep fall of over 2,100 points in just three minutes. The sharp drop triggered a massive spike in out-of-the-money put options.

The sharp move in Sensex came on the first weekly derivatives expiry of September since the closing auction session (CAS) mechanism was introduced.

What is CAS?

The Securities and Exchange Board of India (Sebi) introduced CAS from August 3 as part of changes to the closing-price discovery mechanism for stocks eligible for equity derivatives trading.

Under the new framework, stocks eligible for equity derivatives enter the closing auction after regular trading. Orders placed during the auction are matched to determine the closing price.

The mechanism applies to stocks with available equity derivatives contracts, while stocks outside the eligible universe continue to follow the existing volume-weighted average price (VWAP)-based closing mechanism.

The closing auction is designed to provide a structured mechanism for price discovery at the end of the trading session, with indicative prices available during the auction and a randomised closing time.

Why did Sebi introduce CAS?

Sebi has said a reliable closing price is important for products and calculations linked to market prices, including index products, passive investment products and mutual fund net asset values (NAVs).

Sebi chairperson Tuhin Kanta Pandey has described CAS as a significant market microstructure reform and noted that similar closing-auction mechanisms are used in several major global markets.

"CAS is a very big microstructure reform, and we have actually lagged behind. Many of our global counterparts have already done this. Japan did it in 2024, Hong Kong has done it, and it is there in the US, Germany, Europe and Australia," Pandey said earlier.

Pandey has also highlighted the transparency of indicative prices during the auction and the random closing time as features intended to improve visibility into the price-discovery process.

"CAS is a transparent mechanism. Its pricing is always visible, and what is happening inside it is visible," he said.