Why Nifty and Sensex diverged after launch of new auction mechanism
Stock exchanges introduced a new Closing Auction Session (CAS) mechanism for determining closing prices of cash market stocks with derivatives, replacing the Volume-Weighted Average Price (VWAP) system. This change, mandated by SEBI, led to an initial divergence in closing prices between the NSE Nifty and BSE Sensex due to separate order books, differing index compositions, and varying stock weightages. The article explains the CAS process, which aims to improve transparency, strengthen price discovery, and reduce manipulation, and notes the initial market volatility it caused.
Stock exchanges introduced a new Closing Auction Session (CAS) mechanism for determining closing prices of cash market stocks with derivatives, replacing the Volume-Weighted Average Price (VWAP) system. This change, mandated by SEBI, led to an initial divergence in closing prices between the NSE Nifty and BSE Sensex due to separate order books, differing index compositions, and varying stock weightages. The article explains the CAS process, which aims to improve transparency, strengthen price discovery, and reduce manipulation, and notes the initial market volatility it caused.
Exam linkage
GS Paper 3 - Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Specifically, financial markets and their regulation.
Syllabus mapping
This topic appears in Mains
Questions on Indian Economy come up regularly in GS papers. Practice writing an answer — and see exactly what earns marks.
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