India's newly introduced auction-based system to determine end-of-day prices for over 200 stocks continues to produce unexpected swings nearly a month after its launch. The Bombay Stock Exchange (BSE) Sensex index briefly plunged about 3% during the 20-minute closing auction Thursday, renewing concerns over thin liquidity and the potential for manipulation during the window.

The system, which replaced the previous volume-weighted average price method, aims to improve price discovery and align with global standards. However, traders report that low participation during the auction period creates exaggerated price movements that don't reflect fundamental value.

Market participants including Samie Modak and Savio Shetty note the mechanism remains poorly understood by many investors. The BSE building in Mumbai has become a focal point for discussions about whether regulatory adjustments are needed to stabilize the closing auction process.

Regulators are monitoring the situation closely but have not yet announced any modifications to the new framework.