India's new closing-auction system was designed to improve end-of-day pricing, but in the options market, it is generating extreme volatility that creates and erases gains within minutes.

The first monthly expiry under the new system at BSE Ltd. on Thursday demonstrated the magnitude of these swings. A 64,000-rupee put option tied to a bank index started the auction trading at just 1.70 rupees (1.78 US cents). Within 15 minutes, the price surged to 68.55 rupees — a jump of nearly 4,000% — before crashing back to zero.

Market participants are now questioning whether the auction mechanism, intended to enhance price discovery, is instead amplifying risk in India's derivatives segment. Regulators and exchanges are expected to review the system's implementation amid growing concerns over investor protection and market stability.