BSE shares gives up gains from hopes of a CAS review | Latest News Updates

BSE shares have lost nearly 10% of their value since the start of the closing auction session (CAS) on August 3. To curb speculative trading, the new system sets a closing price through an auction in the cash market during the final 15 minutes of the trading day.

First, the reduction in speculation led to about a 20% fall in average daily turnover (BSE and NSE combined) in August. While there’s some improvement in September, it’s still below July’s turnover.

The impact on BSE was two-fold because the settlement was in the cash market, which is dominated by the National Stock Exchange (NSE). F&O traders now have a greater incentive to participate in the underlying stock’s closing auction in the cash market.

“What has happened is that CAS volumes on NSE have picked up more in the cash market than on BSE,” Manas Agrawal, Vice President, Research Analyst at Bernstein, explained.

The loss of competitive edge intensifies once a week when F&O contracts expire. Investors worry that if expiry-day activity increasingly concentrates at NSE where the cash market is deeper, BSE may not gain as much from derivatives turnover as previously expected.

Therefore, the regulator’s decision to review CAS led to a spike in BSE shares, but those gains have now nearly disappeared.

“I think the expectation was that once the regulator came and said that we are looking at changes, this would get resolved. I think this is a step in that direction. Our base case was that this gets resolved by the end of September. Maybe not. It might take a bit longer. But either way, I don’t think this is going to hurt sentiment,” Agarwal added.SEBI’s discussion paper proposes two alternatives to CAS.