BSE Shares Fall Over 9% This Month As New Closing Auction Session Weighs On Volumes
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BSE shares have fallen over 9% this month as the new Closing Auction Session disrupts trading volumes and options turnover, prompting analysts to question the exchange's growth outlook.
Shares of BSE Ltd have fallen more than 9% in August as trading activity comes under scrutiny following the introduction of the Closing Auction Session (CAS) on August 3.
The stock has remained under pressure since the rollout, with options activity also declining. That has raised concerns about BSE's growth outlook, given the importance of its derivatives business in recent years.
What Is Weighing On BSE Shares?
CAS has changed the way closing prices are set for stocks linked to the derivatives market. Under the earlier system, the closing price was based on the volume-weighted average price of trades during the last 30 minutes of continuous trading. The new system uses an auction to arrive at a single closing price.
The 20-minute auction was introduced to improve price discovery and bring India's market structure closer to global practices. It is also intended to reduce the scope for price distortion around the market close.
Since its introduction, traders have raised concerns about changes in activity around expiry days. Some of the trades that previously took place towards the end of the regular session may now be affected by the new process.
BSE Trading Volumes Under Pressure
Bloomberg data showed that BSE's average daily premium turnover was 18% lower during the August 6 and August 13 weekly expiries than the average for weekly expiries in July. Contract volumes fell 20% over the same period.
That matters for BSE because derivatives have become an important part of the exchange's business. A prolonged drop in options turnover could affect transaction revenue and its gains in the derivatives market.
SEBI Says CAS Will Stay
SEBI has faced concerns from traders and other market participants since the rollout but has ruled out a rollback of the Closing Auction Session.
SEBI Chairman Tuhin Kanta Pandey said the regulator would continue to examine the concerns around implementation, but the system would remain in place.
The regulator has also said it has not found evidence of manipulation under CAS so far. Mutual fund participation in the auction has increased since its introduction, according to SEBI.
What Does CAS Mean For BSE?
The impact on BSE will depend largely on how trading volumes behave over the next few expiry sessions.
The exchange had recorded strong growth in its derivatives business before CAS was introduced. Its recent disclosures showed record average daily premium turnover in index derivatives, along with higher open interest and broader participation.
A recovery in volumes as traders get used to CAS could ease some of the pressure on the stock. If activity stays below July levels, however, it could weigh on BSE's revenue and earnings outlook.
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Rochelle Britto is a business journalist with 8+ years of experience in financial journalism. She covers equity markets, corporate earnings, IPOs, commodities and the economy.
As a reporter with leading business publications, she has tracked financial markets and covered sectors including banking and financial services, retail, consumer goods, advertising and e-commerce.
Outside work, she enjoys travelling, discovering local cultures and spending time in nature.
