India’s new closing system absorbed a record $4.2 billion of stock trades linked to MSCI Inc. index rebalancing on Monday. Yet the sharp price swings that have plagued it since launch persisted, underscoring a key challenge to its long-term success: the lack of market makers.
Turnover in the 20-minute window on the National Stock Exchange of India, the country’s top bourse, was 33 times the daily average since the system’s Aug. 3 debut. Even so, about 60 stocks exited the auction at their 3% price limits, with sharp swings in names including Eternal Ltd., Adani Enterprises Ltd. and Reliance Industries Ltd.
While thin liquidity has been blamed for much of the volatility seen during the auction’s first month, Monday’s price moves occurred despite the large institutional orders flowing through the mechanism. That puts the spotlight on proprietary traders, many of whom use market-making strategies that help smooth imbalances between buyers and sellers.
“The arrival of market makers could be what finally makes the auction a success,” said Mayank Sachan, chief executive officer at proprietary trading firm Zanskar Research. Without them, the auction will still produce sharp price moves despite volumes being traded, he said.
