The introduction of India’s new Closing Auction Session (CAS) aims to enhance transparency but is currently disrupting trading patterns and increasing volatility, impacting brokers, investors, and market benchmarks.
Bernstein said India’s index options market is likely to remain under pressure in the near term as the new closing auction system unsettles trading patterns and makes the final minutes of the session more volatile. The research firm said the shift should become easier to absorb over the coming months, but for now it is disrupting volumes and adding strain across brokers, exchanges and fund managers.
The change centres on the Closing Auction Session, or CAS, which was introduced on August 3 by India’s market regulator, the Securities and Exchange Board of India. The mechanism is designed to produce a single closing price through a short auction at the end of the day for stocks with derivatives contracts, with the aim of improving price discovery, transparency and alignment with global market practice.
Bernstein analysts Manas Agrawal and Himank Sangai said conversations with investors over the past week have repeatedly focused on CAS and its effect on turnover. Their analysis showed trading in the final 15 minutes has fallen sharply, with that window accounting for just 1.6% to 2.3% of daily turnover on the National Stock Exchange, far below the historical 10.1% share. The thinner participation has, in turn, led to larger price swings and less clarity about where stocks will settle.
The impact is important because the closing prices of the most heavily weighted shares feed directly into benchmark levels for the Nifty 50 and Sensex, which then influence derivatives traders and passive investors. Bernstein said lower index-options activity could hit retail-focused discount brokers, while stock exchanges may also feel pressure because they earn fees from options premium turnover. Retail sellers of options have seen the value of their positions erode, while buyers have faced abrupt gains and losses as indexes swing around the auction. Passive funds have largely stayed out of the closing window so far, though Bernstein said they may need to take part on rebalancing days. The firm also noted that the lack of liquidity has raised concerns about unexplained moves and possible order spoofing.
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