CAS chaos: Retail traders call for boycott, declare ‘No Trade Day’

Stock exchanges introduced the new CAS system this month, changing the way closing prices are calculated for stocks included in the futures and options (F&O) segment. What followed was strong volatility and a sharp divergence in the benchmark indices’ closing prices.

Several investors took to social media platforms, encouraging others as well to quit trading on Wednesday as a mark of protest against the system, along with the higher securities transaction tax (STT) and changing rules.

“I carried zero positions in indices, won’t take any indices trades or new SSO trades today. Have SSO positions open which I’ll manage if needed. Let’s observe #NoTradingDay today and make it a success,” said an X user named Ashish Gupta, who claims to be a full-time trader.

Several others also took to X to say that they are not trading today. “The decision day has arrived. If you genuinely want Indian traders to prosper, do not take a single trade today. I will not be punching even a single order myself. If the volume and liquidity are actually hurt, it will send a message that retail traders have power and they can also unite against a draconian rule,” another X user wrote.

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Some, however, questioned the timing of the boycott, saying that Tuesday or Thursday should have been picked as higher trading on expiry day would have further intensified the impact. Notably, no official stock broker association has yet officially announced any such boycott.

What is CAS?

Under CAS, continuous trading in stocks that also have F&O contracts ends at 3:15 pm. However, this does not mean these stocks are closed for the day 15 minutes before the broader market shuts. From 3:15 pm onwards, these stocks move into the CAS, a 20-minute auction process that runs until 3:35 pm to determine their official closing prices. Meanwhile, stocks that are not part of the F&O segment continue to trade as usual until 3:30 pm.During the 20-minute auction window, buy and sell orders for eligible stocks are collected and matched at a single equilibrium price. This mechanism is aimed at improving price discovery and reducing the impact of last-minute trades on closing prices.

Also read | Old strategies buried alive: How CAS hit Dalal Street traders

Initial teething issues or flaws?

While panic prevails on Dalal Street, some analysts pointed out that these are initial teething issues that will gradually fade away. SEBI officials during their meetings with market players said that the new system is just facing teething issues in its early days and that the regulator remains confident it will improve as participation rises.

Vinod Nair, Head of Research at Geojit Investments, said the gap between the 3:30 pm and 3:40 pm closing prices of Nifty stocks and the index, along with the divergence with the Sensex, suggested that the new system was not functioning as intended. “This has triggered forced square-offs of positions, particularly among retail investors, ahead of the 15 minute blind derivatives window closing session,” he said.

Nair said these appeared to be initial teething issues and that exchanges and the market regulator need to address the discrepancies. He added that the impact was currently limited to the F&O segment of trading stocks and main indices.

“Since it has only been a few days, it is difficult to make a judgement call on the new methodology as the market takes time to adapt,” Reuters quoted Raj Deepak Singh, vice president of derivatives and quantitative research at ICICI Direct, as saying.

Also read | CAS is here to stay: SEBI confident that Closing Auction Session will improve as participation rises, despite market-wide confusion

(With inputs from agencies)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)