BSE seeks to boost closing auction participation
BSE Ltd. is in discussions with high-frequency trading (HFT) firms and other market participants to encourage greater participation in its newly introduced closing auction system, according to the exchange's chief executive officer, Sundararaman Ramamurthy.
Speaking on Wednesday, Ramamurthy said liquidity remains critical to the success of the closing auction mechanism. Participation from retail investors and HFT firms has so far been limited, restricting liquidity in the system, a Bloomberg report said, citing Ramamurthy's interview with Zee Business.
"HFT firms, proprietary traders and retail investors are not participating as they 'seem to be not seeing benefit of this system,'" Ramamurthy said in the interview. "We are talking to them as their participation will only make CAS a success," he added, noting that "some minor changes will always be considered to make the system more efficient."
The closing auction system was rolled out on August 3 to align Indian markets with major global peers. It has faced hiccups since its launch, with the latest index rebalancing witnessing sharp swings in most stocks, according to a report by The Economic Times.
Impact on turnover and shares
The mechanism has also shrunk options turnover at BSE and its larger rival National Stock Exchange of India Ltd. Average daily turnover for index options premium declined to its lowest in about a year and a half in August, Jefferies Financial Group Inc. analysts wrote in a note. The analysts cautioned that the closing auction has negative implications for BSE and Billionbrains Garage Ventures , the parent of top broker Groww.
BSE's shares fell more than 3% on Wednesday, extending their slide since the start of August to nearly 19%, as reported by The Economic Times. Business Today reported that BSE shares fell as much as 3.4% on Wednesday and have declined around 14% over the past month, amid pressure on the stock.
The two reports differ on the timeframe for the share decline: The Economic Times cites a slide of nearly 19% since the start of August, while Business Today cites a decline of around 14% over the past month.
Proposals for other changes
Ramamurthy also discussed the possibility of exchanges being allowed to list their own shares on their respective platforms under the 'permitted to trade' framework. He said discussions are underway with regulators on whether such an arrangement could be permitted.
BSE, which is currently listed on NSE, had earlier sought regulatory approval to make its shares available for trading on its own platform through the permitted-to-trade route. The exchange's request was not approved, Ramamurthy said.
Ramamurthy also suggested that a common order book across BSE and NSE could help increase participation and liquidity in the closing auction, while also improving price discovery, as cited by Bloomberg from the Zee Business interview.