Indian bank stocks experienced significant divergence in closing prices between the country's two major exchanges on Thursday, signaling continued disruption from the new closing auction mechanism. After the 20-minute auction concluded, IndusInd Bank closed at 1,002.9 rupees on the National Stock Exchange, while the same stock plunged over 3% to close at 970 rupees on the Bombay Stock Exchange. This nearly 33-rupee gap marks the widest spread seen in over two decades.

Other banks, including AU Small Finance Bank, IDFC First Bank, and Federal Bank, also saw their closing prices deviate significantly between the two exchanges. The BSE bank index fell as much as 3.3% during the auction period before partially recovering to close 1.7% lower. Several mid-sized banks failed to bounce back due to thin liquidity and the expiry of monthly contracts on the 14-stock bank index. The index gained 1% on Friday.

Since the auction system was introduced on August 3, Indian equity and derivatives markets have shown frequent abnormal trading patterns. These events have raised concerns about the mechanism's operational logic and its vulnerability to potential manipulation, with the price divergence between the two exchanges drawing increased regulatory scrutiny.

"I've traded in markets across the globe and have never witnessed such unusual activity—closing price gaps of up to 3% between exchanges for the same stock," said Mayank Bansal, a hedge fund trader based in Dubai.

A key reason the gaps persist is that during the auction window, no reliable model can predict where stocks will close on both exchanges. Varun Khandelwal, founder of Gurugram-based proprietary trading firm Bullero Capital, noted that "this makes pure arbitrage trading impossible."

The system, which determines closing prices for over 200 stocks, has drawn strong opposition from market participants and is now under regulatory review. India's Securities and Exchange Board recently barred two institutions from trading, including a subsidiary of JPMorgan, for allegedly manipulating stock prices during the auction phase. "Confidence among traders and other market participants is eroding, and such violent swings could push them to avoid this market," said Karthik P., a partner at Karna Securities brokerage.