CAS Chaos Sparks Liquidity Spiral: Nuvama Urges Increased Participation to Break the Cycle

The recently implemented Closing Auction Session (CAS) on the BSE has resulted in a notable decline in market participation, as highlighted by Nuvama Institutional Equities. The week ending recently saw BSE’s option premium volumes drop to Rs 15,600 crore, marking a sharp 14% decrease from the previous week. Such reductions were compounded by an over 8% fall in the average daily contracts traded, which now stands at Rs 9.6 crore. This decline in activity is correlating with a 6% week-over-week drop in premium per contract to Rs 1,631, underscoring the market’s concerns regarding the newly introduced auction system.

The shift to CAS, which alters how closing prices for specific stocks are determined, has led to confusion and apprehension among market participants. The mechanism introduced on August 3 aims to enhance price discovery, yet initial reactions from segments like retail investors have been negative, with reports of boycotts and reduced trading activity causing further attrition. The discrepancy observed between benchmark indices, such as Sensex and Nifty, accentuates this rift, reflecting varying levels of investor confidence and participation in response to the changes.

Regulatory bodies, including SEBI, are aware of these initial teething issues and are optimistic that increased market participation will stabilize the situation. However, allegations of manipulation during the CAS have emerged, with SEBI issuing interim orders against entities implicated in actions that affected the index’s performance during this new auction session. Such developments may further shake investor confidence, especially among retail traders who are wary of potential volatility stemming from these manipulations.

Source: The Economic Times

(Expert Note: This intelligence brief was structured and verified by the Wealthova editorial desk.)