India launches equity closing auction, triggering confusion in market debut

India's benchmark Nifty 50 has swung sharply since the launch of a new closing-price mechanism for stocks with derivatives contracts, creating a rare divergence with the Sensex for a third straight session and leaving traders with losses. The reform introduces a Closing Auction Session that begins at 3:15 p.m. IST after regular trading ends in eligible stocks, with order entry closing at a random time between 3:28 p.m. and 3:30 p.m. before trades are matched to determine the official close. Stocks without futures and options contracts continue to use the earlier method based on the average of trades in the final 30 minutes of continuous trading. The National Stock Exchange of India said the two bourses keep separate order books, so stock prices can differ between exchanges and push benchmark closes apart, especially because the Nifty 50 is heavily weighted toward HDFC Bank, ICICI Bank and Reliance Industries, which together account for more than 27% of the index. The exchange also said differing weightings and stronger institutional cash-market volume on NSE than BSE can widen the gap. Market participants expect the divergence to narrow as the market adjusts, and Kotak Mutual Fund said pricing inefficiencies should ease over time even if the initial days bring volatility and temporary dislocations. Reuters also reported that the regulator was unlikely to review the system immediately and expected the issues to settle soon.