Markets face 2-day volatility in last 15 mins to close:Sebi changes FO timetable

After SEBI’s new CAS rule was implemented in the share market, there was a big surge at closing time for the second consecutive day. This surge has created considerable confusion among retail traders. On August 3, after 3:15 PM, Nifty suddenly jumped 185 points and closed above 24,770. A similar vertical spike was seen today on August 4 as well. Nifty jumped from 24,465 to close at 24,614. In this story, we will understand why SEBI implemented this rule. Why is there a sudden surge in the market during the last 15 minutes due to this rule. What precautions should retail traders take. New rule for determining closing price in share market Now the closing price is being determined through ‘Closing Auction Session’ i.e. CAS instead of the old average formula. In Phase-1, this rule has been implemented only on shares included in Futures and Options. Trading in other ordinary shares continues till 3:30 PM as before. How was the closing price determined earlier? Until August 3, the exchange used to calculate the VWAP i.e. Volume Weighted Average Price of trades in the last 30 minutes, from 3:00 PM to 3:30 PM. This was done so that no one could manipulate the share price by doing a small trade at the last minute. For example, if a share traded between ₹1,000 to ₹1,010 throughout the day and at 3:29 PM just 1 share was traded at ₹980, then ₹980 was not considered as the closing price. What is the new Closing Auction Session CAS? Now CAS is being used instead of VWAP. In this, instead of averaging the trades of the last 30 minutes, all buy and sell orders are collected together at the end of the day. After this, the exchange determines a single price at which the maximum number of shares can be traded. New timetable for the last 30 minutes for FO shares Understand with an Example How the Final Closing Price is Determined Suppose during the auction, the market depth is as follows: In this data, ₹1,005 is the price at which the maximum number (900 shares) can be traded. Therefore, ₹1,005 will be considered the ‘Equilibrium Price’ and this will become the official closing price for that day. Key Points for Investors Now Answers to Some Important Questions Question 1: What was seen in Nifty at closing time on both August 3 and August 4? Answer: On August 3, after a limited range throughout the day, Nifty closed straight from 24,589 to 24,774 in the closing window (a surge of approximately 185 points). Similarly, on August 4th, after a decline throughout the day from the lower level of 24,465, there was tremendous buying auction matching in the last candle and Nifty closed at 24,614.90 with a gain of +151.95 points (+0.62%). Question 2: What were the shortcomings in the old closing system that necessitated bringing in a new rule to replace it? Answer: In the old system, the Volume-Weighted Average (VWAP) of trades during the last 30 minutes from 3:00 PM to 3:30 PM was calculated. In this, many times large traders would manipulate the closing price according to their preference by executing small volume trades in the last seconds. In the new auction rule, following the lines of New York and London, all orders are matched in a pool to derive a transparent closing price.