Indian Bank Stocks See Widest Exchange Price Gaps in Decades

Shares of several Indian banks closed with sharply different prices on the country's two largest stock exchanges, a dislocation that has raised significant concerns about a recently introduced closing auction system. The event, reported by Bloomberg, highlights potential market instability and arbitrage challenges for investors.

Unprecedented Price Discrepancies

On Thursday, the most striking example was IndusInd Bank Ltd., which closed at 1,002.9 rupees on the National Stock Exchange (NSE) but at 970 rupees on the BSE. According to Bloomberg data, the nearly 33-rupee difference marked the widest closing-price gap for the lender between the two exchanges in more than two decades.

Other financial institutions also experienced large pricing gaps, including:

• AU Small Finance Bank
• IDFC First Bank
• Federal Bank

The volatility had a broader impact, with the BSE Bankex index falling as much as 3.3% during Thursday's auction before recovering to close 1.7% lower. The index rebounded by 1% the following day.

Closing Auction System Under Scrutiny

Ad

Market participants attribute the dislocations to India's new closing auction system, which was introduced on Aug. 3 to determine end-of-day prices for over 200 stocks. Traders told Bloomberg that the uncertainty over final closing prices on the NSE and BSE makes it difficult to arbitrage the differences effectively.

“I trade multiple markets globally and haven’t seen such a dislocation where the same stock closes with as much as a 3% gap on different exchanges,” said Mayank Bansal, a Dubai-based hedge fund trader, in comments to Bloomberg. The situation was reportedly exacerbated by thin liquidity as Thursday marked the monthly expiry of options contracts linked to the BSE Sensex and Bankex indexes.

Market and Regulatory Concerns

The new system has already attracted regulatory oversight. India’s Securities and Exchange Board recently barred two firms, including a JPMorgan Chase unit, from the market for allegedly manipulating prices during the auction. This prior action indicates that regulators are closely monitoring the system's integrity.

Market experts warn that such volatility could erode investor trust. Karthik P, a partner at Karna Stock Broking, told Bloomberg that these events could weaken confidence among traders and other market participants, posing a risk to overall market stability.