Closing price auction aftermath: NSE-BSE price gaps fuel arbitrage trades

Unusual price gaps between NSE and BSE have created short-lived arbitrage opportunities for high-frequency traders, with several Nifty 50 stocks trading at divergent prices

Unusual stock price movements at the National Stock Exchange (NSE) over the past three trading sessions, since the rollout of the closing auction session, have created a price arbitrage and low-risk profit opportunity for high-frequency, high-volume traders between the NSE and the BSE. 

Many largecap index stocks have moved at a different pace on the two exchanges during this period. While some stocks have risen more on the NSE than on the BSE, others have posted larger gains on the BSE. Similarly, several index stocks have recorded steeper declines on the NSE than on the BSE. This has created opportunities for day traders to buy a stock at a relatively lower price on one exchange and simultaneously sell it at a higher price on the other, pocketing the spread. 

Bajaj Auto, for example, closed at ₹11,800 per share on the NSE on Wednesday, 1.01 per cent higher than its closing price of ₹11,681.5 on the BSE. On Monday, this stock had closed 3 per cent higher on the NSE than on the BSE, with the difference narrowing to 0.43 per cent on Tuesday. In comparison, it had closed at ₹11,520.5 per share on the NSE last Friday, just 0.01 per cent higher than its closing price of ₹11,519.5 on the BSE. 

Similarly, Tata Steel’s closing price on the NSE on Wednesday was 0.91 per cent higher than its closing price on the BSE. The stock ended at ₹193 per share on the NSE, compared with ₹191.3 on the BSE. Overall, 15 of the 50 Nifty 50 stocks closed at least 0.5 per cent higher on the NSE than on the BSE on Wednesday. 

At the other end of the spectrum, SBI Life Insurance Company’s closing price on the NSE was 0.69 per cent lower than its closing price on the BSE. The stock, on Wednesday, ended at ₹1,879.9 per share on the NSE, compared with ₹1,893 on the BSE. 

Axis Bank’s closing price on the NSE was 0.64 per cent lower than on the BSE. The stock ended at ₹1,253.9 per share on the NSE, compared with ₹1,262 on the BSE. Similarly, Sun Pharmaceutical Industries closed 0.46 per cent lower on the NSE than on the BSE. 

The price arbitrage between the two exchanges first emerged on Monday and has persisted through the past three trading sessions, although the overall difference in closing prices has narrowed. 

Last Friday, July 31, the median difference in the closing prices of Nifty 50 stocks across the two exchanges was just 0.01 per cent, with Mahindra & Mahindra closing 0.06 per cent higher on the NSE and Adani Ports closing 0.18 per cent lower on the NSE than on the BSE. The median price difference surged to 0.86 per cent on Monday, before narrowing to 0.58 per cent on Tuesday. However, several index stocks, including Trent, Adani Enterprises, ITC, Bajaj Auto, Grasim, Tata Steel, Bajaj Finance and HDFC Life Insurance, recorded a wider divergence in closing prices between the two exchanges on Wednesday than on Tuesday. 

The anomaly was also reflected in the closing market capitalisation of Nifty 50 companies on the two exchanges. Last Friday, the combined closing market capitalisation of Nifty 50 stocks on the NSE was only ₹989 crore higher than on the BSE. The gap widened sharply to ₹1.42 trillion on Monday before narrowing to ₹89,625 crore on Tuesday, and further to ₹22,676 crore on Wednesday. 

Analysts, however, said the arbitrage opportunity is unlikely to persist as high-volume arbitrage traders move quickly to exploit and eliminate such pricing gaps. “This kind of low-hanging arbitrage profit will not last long as traders rush to exploit it and eliminate the price difference between the two exchanges,” said G Chokkalingam, founder and head of research at Equinomics Research.