India’s Index-Options Trading Faces Near-Term Drag Due To CAS, Bernstein Says

India’s index-options activity is likely to remain under pressure in the near term as traders adjust to the new Closing Auction Session, according to Bernstein. The research firm said the mechanism has caused sharp price movements near the end of the trading day, affecting participants across the derivatives market.

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

Open Account Now

Bernstein expects the market to gradually adjust to CAS over the coming months, but said the transition could weigh on volumes in the meantime.

Trading Activity Falls In Final 15 Minutes

CAS came into effect on August 3 and is used to determine the official closing price for stocks with derivatives contracts. Since several of these stocks have significant weights in benchmark indices, changes in their closing prices can affect the Nifty 50 and Sensex as well as index derivatives and passive investment products.

Bernstein analysts Manas Agrawal and Himank Sangai said in a Tuesday note that CAS had become a recurring issue in discussions with investors over the past week.

The firm’s analysis showed that trading during the final 15 minutes on the NSE accounted for only 1.6% to 2.3% of daily turnover after CAS was introduced. Historically, the period represented about 10.1% of daily turnover.

The decline in activity has left thinner liquidity around the closing period and made it harder for market participants to gauge where an index may finally settle.

Brokers And Exchanges Face Volume Risk

A sustained reduction in index-options activity could affect retail-focused discount brokers, where trading volumes contribute to revenue. Stock exchanges could also face an impact because their earnings from derivatives include fees linked to options premium turnover.

The effect is also being felt by options traders. Bernstein said sellers of options have faced erosion in the value of their positions, while buyers have experienced larger gains or losses when benchmark indices move sharply during the auction.

The Nifty 50 share price and Sensex levels are particularly relevant to derivatives participants because the official closing values feed into index-option settlements.

Passive Funds May Need To Return

Bernstein noted that passive funds have generally stayed away from the closing auction so far. Their participation could become necessary on index-rebalancing days, when portfolio managers need to adjust holdings to reflect changes in benchmark composition.

The research firm also pointed to concerns surrounding unusually large price movements within the auction window. In certain cases, even if the gap between the pre-auction price and the final closing price was small, considerable changes have been made.

This has led to queries about the behavior of orders when liquidity levels are low, particularly in relation to spoofing.

Market Adjusts To New Closing Mechanism

India has one of the world’s largest equity-derivatives markets, while the National Stock Exchange ranked as the largest derivatives exchange globally by contract volumes in 2025.

Bernstein expects the impact of CAS to become clearer as participants adapt and liquidity develops around the new process. Until then, lower activity in the closing minutes could remain a drag on index-options volumes and businesses linked to equity-market trading.