Indias closing auction pushes traders to cut risk
Indias new closing auction has sparked volatility and reduced trading turnover. Market participants are cutting positions and adding hedges due to unpredictable final-minute price swings.
India's new closing auction has triggered a 20% drop in average daily options turnover during August, pushing traders toward smaller positions and heavier hedges. The shift follows sharp price swings in the final 15 minutes of trading that made end-of-day closing levels harder to predict. Average daily cash equities turnover on the National Stock Exchange fell 0.6% over the same period.
The closing auction session, introduced on August 3, determines official closing prices through a brief end-of-day mechanism aimed at improving price discovery. However, its first month exposed vulnerabilities including cross-exchange index discrepancies, limited liquidity, and susceptibility to manipulation. Jefferies reported the drop in options turnover, while some algorithmic traders cut activity by 35% to 40%.
