CAS weighs on derivatives volumes, raising financial markets concerns

Synopsis

August saw a significant dip in equity derivatives turnover on the NSE and BSE, reaching multi-month lows. Analysts connect this downturn to the recent implementation of the Closing Auction Session, which has changed the dynamics of trading near market close. Traders are opting to exit their positions sooner to avoid potential pitfalls. The regulator reassures that this session mechanism is now a permanent feature.

Mumbai: The turnover of equity derivatives on the NSE and the BSE fell to fresh multi-month lows in August. Analysts attributed the decline to heightened volatility under the new Closing Auction Session (CAS) mechanism that drove several participants to cut back on derivatives activity, particularly in the final half-hour of the trading day.

"The decline in derivatives volumes is largely a result of the behavioural changes triggered by CAS," said Rajesh Palviya, head of research, Axis Securities.

Last month, NSE's total monthly equity derivative turnover was ₹34.48 lakh crore, the lowest since November 2023. BSE's August turnover stood at ₹32.2 crore, the lowest since June 2025.

CAS was implemented in Indian markets from August this year.

It operates as a separate session of 20 minutes from 3.15 pm to 3.35 pm, during which the exchange first collects buy and sell orders and then matches them to determine a single official closing price for the stock.

Palviya said that since this system was implemented, brokers are squaring off positions earlier by 3.05-3.10, while traders are also closing positions early to avoid the heightened volatility in the final minutes. "The early closure of the cash market also limits arbitrageurs and jobbers from executing delta-hedging strategies across cash, futures and options," he said. "Since algos, prop desks, scalpers and arbitrageurs operate on thin margins, many are choosing to stay away from the CAS window rather than risk losses."

This daily loss in volumes has compounded into a larger decline in monthly turnover.

Many traders and market participants opposed CAS and urged the Securities and Exchange Board of India (Sebi) to roll back the mechanism, saying that it creates significant uncertainty between the live market price and the final settlement price.

Read more: FOMO alert: Retail investors sold 1,051 stocks before they soared 36% on average

A key concern has been that large orders in relatively thin volumes can cause sharp movements in stock prices seen at 3.15 versus those at 3.30. However, the regulator has clarified that CAS is here to stay. Sebi Chairman Tuhin Kanta Pandey said last week that he envisages no changes to the mechanism, indicating enhanced participation as investors become more aware of the new process.

Mehul Kothari, deputy vice-president at Anand Rathi Share and Stock Brokers said the shift in the expiry-day trading structure has reduced some of the very short-term speculative activity that was contributing significantly to options volumes.

"In addition, the introduction of CAS has altered trading behaviour around the close and expiry, with participants adapting to the new mechanism," said Kothari, adding that lower market volatility and a relatively range-bound market have also reduced the opportunities for aggressive directional and intraday options trading.

...moreless

...moreless