India’s contentious new closing auction system is about to face its biggest challenge yet as billions of dollars in passive-fund trades flow through it.
The quarterly rebalancing of MSCI Inc. indexes on Monday will be a key test of whether the mechanism can absorb large institutional orders without producing the sharp price swings that have unsettled traders since its launch earlier this month.
The index changes may spur about $5 billion in trading turnover by global passive funds, with roughly $4 billion passing through the Closing Auction Session, according to Brian Freitas, founder of Auckland-based Periscope Analytics.
“It could get pretty messy,” Freitas said. “The expected flow is almost 30 times what the CAS window has typically been handling.”
The scale of the event is significant compared with what the auction has handled so far. The mechanism has typically been seeing about $125 million of daily turnover.
