Former Bharatiya Janata Party (BJT) Member of Parliament Kirit Somaiya has called on the Securities and Exchange Board of India (SEBI) to investigate the sharp swings in the Sensex during the Closing Auction Session (CAS) on August 27, when the benchmark index plunged more than 2,000 points within minutes before recovering much of the loss.

Somaiya questioned whether the new CAS mechanism, which was introduced on August 3, suffers from weaknesses related to liquidity and price discovery. His demand for a regulatory probe centers on how the auction-based closing process handled order flows during the episode of extreme volatility.

SEBI, India's capital markets regulator, oversees the functioning of stock exchanges such as the BSE, where the Sensex is traded. Closing auction sessions are designed to determine a stock exchange's official closing prices by matching buy and sell orders placed during a short window at the end of the trading day, with the aim of reducing volatility and improving price discovery at the close. Closing price accuracy matters beyond the exchange itself: official closing prices are used to settle index values, and are widely referenced by passive funds and institutional investors for NAV calculations and trade benchmarks, so abrupt closing-price moves can ripple into fund valuations even when intraday trading was orderly.

The August 27 session, however, saw the Sensex drop over 2,000 points in a matter of minutes during the CAS before rebounding to recover most of the decline, prompting Somaiya's appeal for the regulator to examine the episode. Closing auctions are a feature of major exchanges worldwide, and questions about how such mechanisms behave under concentrated end-of-day order flow are a recurring theme in market-microstructure reviews; whether SEBI or the exchanges respond to Somaiya's request, and whether any review of the CAS design follows, remains to be seen.

The original report is available at the Economic Times.