Sensex volatility spikes during CAS on F&O expiry day; here's what happened

On the first monthly expiry of derivatives contracts on BSE since the introduction of the Closing Auction Session (CAS), the Sensex and Bankex witnessed sharp intraday swings during the auction window on Thursday.

The Securities and Exchange Board of India (Sebi) introduced CAS on August 3 as a new mechanism for determining the closing price of stocks. The system applies to around 200 stocks on which equity derivatives contracts are available, while non-derivative stocks continue to use the volume-weighted average price (VWAP)-based closing mechanism.

Under CAS, eligible stocks enter the closing auction after regular trading, with orders matched to determine the final closing price. The mechanism is intended to improve the price-discovery process and reduce the scope for last-minute orders to influence closing prices.

On Thursday, Sensex saw sharp movements after the start of the CAS window. Between 3:18 pm and 3:23 pm, the index fell more than 2,200 points before recovering nearly 2,000 points between 3:23 pm and 3:30 pm. Sensex eventually closed at 76,934, down 539 points from Wednesday's close.

Nifty also moved sharply during the corresponding period, although the swings were less pronounced than those seen on BSE. Between 3:18 pm and 3:22 pm, the index fell more than 100 points before recovering around 50 points. It ended the session at 24,091, down 117 points.

Several Sensex constituents also recorded significant price movements during the CAS window.

Reliance Industries, the index's largest-weight stock, declined from around Rs 1,280 to Rs 1,250 within minutes before recovering to close at Rs 1,288. HDFC Bank, ITC and Bharti Airtel were among other stocks that also witnessed sharp movements.

Why CAS was introduced

Sebi introduced CAS as part of changes to the closing-price discovery mechanism for stocks eligible for equity derivatives trading.

Sebi chairperson Tuhin Kanta Pandey has described CAS as a major market microstructure reform and said similar mechanisms are already 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.

According to Pandey, a reliable closing price is important for index products, passive investment products and the calculation of mutual fund net asset values (NAVs).

He has also highlighted the role of indicative prices and the random closing time in the auction mechanism. According to the Sebi chief, these features provide greater visibility into price discovery and reduce the scope for last-minute bids to influence the closing outcome.

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

Sebi monitoring CAS

Pandey has said that Sebi is engaging with market participants and monitoring feedback on the new mechanism.

"If there is a need to tweak it and improve it, we will also see that," he said, adding that the regulator needs to remain watchful while ensuring market participants understand the mechanism.

The Sebi chairperson has also said that the difference between the Sensex and Nifty levels at the end of regular trading and their final closing values under CAS had moderated from the levels seen in the initial days after its introduction.