BSE shares fall 3% as exchange flags lower participation under Closing Auction Session

BSE Ltd shares fell as much as 3% on 2 September after the stock exchange acknowledged that the recently introduced Closing Auction Session (CAS) has resulted in lower trading volumes and participation from some segments of the market, according to a Mint report.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

The stock opened at ₹3,222.60 against the previous close of ₹3,242 and fell to an intraday low of ₹3,131.50 during Wednesday's session, as per market data cited by Mint.

Exchange points to lower participation

The pressure on the stock came after BSE said the new auction mechanism had led to lower participation from high-frequency traders, proprietary trading firms and retail investors.

"CAS has led to lower participations from HFT, proprietary accounts, retail traders. CAS participation needs to pick up," the exchange was quoted as saying by Zee Business, according to Mint.

The Closing Auction Session was introduced on 3 August to determine the official closing price of stocks through an end-of-day auction, where buy and sell orders are matched during a dedicated session. Similar systems are already used in markets including China, Taiwan, Hong Kong and South Korea, according to Mint.

Impact of the new closing-price mechanism

The CAS replaced the earlier methodology under which a stock's closing price was calculated using the average price of trades executed during the last 30 minutes of continuous trading. Regulators introduced the new system to align Indian markets with global practices, Mint reported.

Since the rollout, the mechanism has led to noticeable price swings and differences in benchmark index closing values, while liquidity during the auction window has remained relatively limited and largely driven by institutional investors, according to the report.

Exchange data cited by Mint showed that trades executed during the Closing Auction Session accounted for less than 1% of total daily cash-market turnover. The volume was also less than one-third of the activity recorded under the earlier closing-price framework.

According to NSE, the CAS is designed to make the process of determining closing prices more transparent and fair by matching buy and sell orders at the end of the trading session.

Stock performance

Despite the latest decline, BSE shares have delivered strong long-term returns.

The stock has fallen 5.49% over the past week and 14% over the last month, according to data cited by Mint.

Over a longer period, the stock has gained 19.6% on a year-to-date basis and 43.24% over the past year. It has risen about 737% in three years and 2,291% in five years.