The Nifty’s closing price today was relatively muted; however, the sharp swings since the implementation of the Closing Auction Session (CAS) did spark some concerns. But Zerodha founder Nithin Kamath says the real issue lies deeper. In a social media post on LinkedIn, he explained what lies behind such sharp volatility, what Indian capital markets lag, and what can be done to resolve this. “CAS itself is not a bad idea. Most large global markets have some form of closing auction. A large amount of institutional activity, especially from passive funds and other benchmark-tracking investors, happens near the close,” said Kamath. CAS pools buy and sell orders into a single auction to discover one closing price. The idea is to improve price discovery and help large institutional orders, especially from passive funds, execute without causing sudden price changes at the last minute. Most mature markets use some version of a closing auction. In India, the closing price used to be the volume-weighted average of trades in the final 30 minutes. CAS replaces that with a single equilibrium price. Kamath said that CAS is not the cause of the recent issues. It simply makes long-standing problems impossible to ignore. “CAS is not the reason for these structural limitations, but it makes them more apparent,” he added. According to him, Indian markets lack the deep two-sided liquidity needed for smooth auctions. There are over 13 crore registered investors, but only about 20–30 lakh active traders on a typical day. That thin ecosystem struggles to absorb order imbalances at the close. “We don’t have a large enough committed ecosystem providing two-sided liquidity across the cash market, futures, ETFs, and closing auctions,” read the post. Shorting in the cash market is also hard. The securities lending and borrowing mechanism exists, but it isn’t deep or easy to use on a larger scale. Without easy shorting, there is structural upward pressure and limited arbitrage when prices diverge, he added. Cost distortions add to the problem. He pointed out that, after the April 2026 STT change, trading futures became more expensive Kamath further said that the timing compounds things. RBI’s new norms limiting banks’ capital-market exposure are rolling out alongside CAS, squeezing institutional risk capital just as the auction needs it most. Kamath said CAS may need tweaks, but the bigger fix is market depth. That means making shorting and securities lending easier, reducing instrument-level tax and cost distortions, and encouraging genuine market makers to provide two-way quotes. “There might be tweaks required in how CAS itself works. But the larger issue of our markets being shallow is a complicated problem to solve. It requires building an ecosystem that encourages all kinds of traders and investors, with different time horizons, to participate easily,” said Kamath. Until India builds a broader, more diverse set of participants across cash, futures, ETFs and auctions, closing-price volatility will remain a feature, not a bug. CAS hasn’t broken the market; it has held up a mirror.