BSE Sensex plunges 3% during closing auction amid liquidity concerns

India’s BSE Sensex dropped approximately 2,400 points, or roughly 3%, during a 20-minute closing auction session on August 27, before recovering to end the day down 539.35 points at 76,933.59. That’s a 0.70% decline on paper, but the intraday chaos told a far more alarming story. The plunge coincided with the first monthly derivatives expiry under the Bombay Stock Exchange’s new Closing Auction Session system, a mechanism that was supposed to improve price discovery. Instead, it delivered a stress test that left market participants rattled and regulators once again in the spotlight. What happened and why the CAS matters The Closing Auction Session, or CAS, went live on August 3, replacing the volume-weighted average price (VWAP) method that had previously determined closing prices on the BSE. Under the new system, orders are accepted during a 20-minute window within a plus-or-minus 3% band around a reference price set at 3:15 pm. The auction closes randomly between 3:28 and 3:30 pm, a design feature intended to prevent last-second gaming. The numbers illustrate the problem starkly. In the early days after implementation, CAS turnover on the BSE clocked in at roughly Rs 10.8 crore. ...