STOCKS | Indian Bank Shares See Biggest Cross-Exchange Price Gap in Decades

Some Indian bank shares ended Thursday with sharply diverging closing prices on the country’s two main exchanges, another sign of market disruption tied to the new closing auction system. According to Sina Finance, after the 20-minute auction ended, IndusInd Bank closed at 1,002.9 rupees on the National Stock Exchange of India, while the stock fell more than 3% on the Bombay Stock Exchange to 970 rupees. The nearly 33-rupee gap was the highest level in more than two decades. AU Small Finance Bank, IDFC First Bank, and Federal Bank also saw large closing price divergences. The Bombay Stock Exchange bank index fell as much as 3.3% during the auction before recovering part of the loss and ending down 1.7%. Some mid- and small-cap banks failed to rebound because of weak liquidity and the monthly expiry of the bank index futures contract, which has 14 constituents. The index closed up 1% on Friday. Since the auction system launched on August 3, Indian equities and derivatives markets have repeatedly seen unusual moves. The incidents have raised concerns about how the mechanism works and the risk of manipulation, while price gaps between the National Stock Exchange of India and the Bombay Stock Exchange have drawn further regulatory scrutiny. “I trade in multiple markets around the world, and I have never seen such unusual moves: the same stock had a closing price gap of as much as 3% across exchanges,” Dubai hedge fund trader Mayank Bansal said. Varun Khandelwal, founder of Gurgaon proprietary trading firm Bullero Capital, said the gap can persist because no reliable model can predict the closing level of a stock on the two exchanges during the auction period. The trading system used to determine the closing prices of more than 200 stocks has faced strong market opposition and regulatory review. India’s Securities and Exchange Board recently barred two firms from trading, including a subsidiary of JPMorgan Chase, accusing them of manipulating stock prices during the auction phase. Kartik P., a partner at Karla Securities Brokerage, said trader and other market participants are losing confidence and that such sharp volatility may prompt them to avoid the market.