Closing Auction Rules Shift Earnings Balance for Stock and Commodity Exchanges

The closing auction session has created a wide profit gap between India's equity and commodity exchanges. While equity exchanges saw profits drop as trading slowed down, commodity exchanges continued to grow.

Earnings Divergence

During the July to September quarter, the National Stock Exchange and BSE reported lower sequential profits due to weaker trading activity. NSE net profit dropped 17 percent to 2,578 crore rupees, and operating revenue fell 11 percent to 4,067 crore rupees. BSE reported a 7.4 percent drop in net profit to 807 crore rupees, with operating revenue falling 8.5 percent to 1,432 crore rupees. In contrast, the Multi Commodity Exchange posted a 10.1 percent increase in net profit to 455 crore rupees, while operating revenue grew 14 percent to 800 crore rupees.

Regulatory Changes

Trading activity at equity exchanges fell sharply, with NSE average daily notional turnover in equity options dropping 16 percent and BSE falling 25 percent. The Securities and Exchange Board of India rolled back the closing auction session framework on 15 October, after market participants raised concerns about abrupt price swings and risks to liquidity. The regulator restored the 30-minute volume-weighted average price for settling derivatives contracts on expiry days, with changes taking effect on 7 December. Following the rollback, NSE shares rose 8.8 percent and BSE shares gained 10.8 percent.

Commodity Outlook

MCX growth was driven by high activity in gold and silver, which accounted for 66 percent of its futures turnover in the first half of the fiscal year. However, analysts question whether this growth is sustainable as volatility in gold has begun to moderate, with the trading range narrowing from 15 percent in the second quarter to 9 percent in the third quarter.

Context

Stock and commodity exchanges serve as central marketplaces where investors buy and sell financial instruments and contracts, and their earnings depend heavily on overall trading volumes and market volatility. Regulatory changes by market watchdogs like Sebi directly influence how trades are settled and can quickly alter trading behavior across the entire financial system.