Shares of several Indian banks recorded notable differences in closing prices across the country's two primary stock exchanges on Thursday. The divergence has drawn attention to the functioning of the newly implemented closing auction system and highlighted concerns regarding potential market misuse.
IndusInd Bank Ltd. concluded trading at 1,002.9 rupees on the National Stock Exchange of India Ltd. following the close of the 20-minute auction window. Simultaneously, the stock dropped more than 3% on BSE Ltd. to settle at 970 rupees. Market data indicates that this gap of nearly 33 rupees represents the widest margin recorded in more than two decades for the institution.
Similar discrepancies in end-of-day values were observed in AU Small Finance Bank Ltd., IDFC First Bank Ltd., and Federal Bank Ltd. During the auction window, the BSE Bankex gauge registered a drop of 3.3% before recovering slightly to end the session 1.7% lower. Thin liquidity and the monthly expiry of the 14-member bank index contributed to some smaller banks failing to rebound during the session, though the gauge subsequently rose 1% at the close on Friday.
Unusual market movements have characterized India's equity and derivatives segments since the rollout of the auction system on August 3. Mayank Bansal, a Dubai-based hedge fund trader, noted that price dislocations where identical stocks close with a gap of up to 3% across different exchanges are uncommon globally.
Market participants point to structural limitations as a primary driver of these persistent gaps. Varun Khandelwal, founder of Gurugram-based proprietary trading firm Bullero Capital, explained that the absence of a reliable model for estimating closing prices on the NSE and BSE during the auction window renders pure arbitrage impossible.
The system, which determines end-of-day prices for more than 200 stocks, has faced criticism and regulatory attention. The Securities and Exchange Board of India recently barred two firms, including a unit of JPMorgan Chase & Co., from the market over allegations of price manipulation during the auction process.
Additional volatility, including a 4,000% options surge within a 15-minute window, has further unsettled traders. Karthik P, a partner at Karna Stock Broking LLP, stated that the ongoing volatility and divergence risks eroding confidence among participants, potentially leading some to steer clear of the market.
"The recent price dislocations observed across the NSE and BSE highlight the critical challenges that accompany major structural changes in financial market infrastructure. When new auction systems are introduced without robust pricing models or sufficient liquidity during transition windows, it creates friction for institutional and retail participants alike. Regulatory oversight, such as the actions taken by SEBI, remains vital to maintain market integrity. For the broader business and financial ecosystem, ensuring price consistency and transparency across exchanges is essential to sustain investor confidence and facilitate efficient capital allocation." — Dr. Shishir Gupta, Founder & CEO, StartupLanes
