Pre-opening trades cause chaos

Mechanism to curb volatility leads to sharp fluctuations on Day One.

The 15-minute pre-opening call auction session, which was introduced to curb excessive volatility in the equity markets, caused chaos on its first day today.

The share price of benchmark stocks, including HDFC Bank, HDFC, Reliance Infrastructure and Hindalco, rose between four per cent and 6.5 per cent on the National Stock Exchange (NSE) in the pre-trading session, indicating a big-bang opening. In fact, the benchmark index of NSE, the S&P CNX Nifty, was up 50 points, while the Bombay Stock Exchange (BSE) Sensex was just 10 points higher than its previous close.

However, when the markets opened, the Nifty was down 20 points from its previous close of 6,062.65. The Sensex opened 36 points higher. HDFC Bank opened with a fall of 0.53 per cent. HDFC was down 1.5 per cent and Reliance Infrastructure opened down 0.11 per cent after the pre-opening session on NSE.

The volatility on BSE was relatively less. HDFC Bank, up 0.57 per cent in the pre-trading session, fell 0.69 per cent when trading commenced. Reliance Infrastructure, up 0.04 per cent pre-trading, gained 0.14 per cent later. HDFC was up 3.18 per cent in the pre-trading session but fell 1.09 per cent after the session.

Market players said high volatility between the two trading sessions could have happened as traders were putting large orders in the pre-trading session at a price but withdrawing them later.

Talking to Business Standard, the NSE spokesperson said, “NSE shows top five buy and sell orders with price and quantity, which leads to determination of the equilibrium price.”

A BSE top official said, “The exchange trading system displays liquidity near the equilibrium price, which enables market players take informed decisions about the opening price of the stock.”

“If large orders are put in a counter and withdrawn during actual trading, the regulator should at least investigate the trader who has done this. Or else, such manipulation will happen daily,” said a broker.

The BSE received 15,228 orders from 492 members, which resulted in trades for 49 stocks out of the 50 available in the pre-opening session. The trading volume was over 10.5 million shares. On NSE, the trading volume was over 118 million shares.