The Securities and Exchange Board of India (SEBI) announced new measures on Thursday (20 June, 2024) to prevent the misuse of pre-open call auction sessions for IPOs.
This 60-minute session, starting at 9 am, will include a fixed time for entering, modifying, and canceling orders, as well as for order matching and trade confirmation.
In a circular, SEBI said, “In order to curb the misuse of the call auction session, based on the report of Working Group of Stock Exchanges and recommendations of Secondary Market Advisory Committee of SEBI, it has been decided to modify the current provisions related to call auction session for IPO & relisted scrips and introduce additional surveillance measures at stock exchanges.”
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Under the new rules, the pre-open session for IPOs will last 60 minutes from 9 to 10 am. Of this, 45 minutes are allocated for order entry, modification, and cancellation, and 10 minutes for order matching and trade confirmation.
A 5-minute buffer will facilitate the transition to the normal trading session.
The session will close randomly during the last 10 minutes of order entry, anytime between the 35th and 45th minute, and this random closure will be fully automated. Thus, changes will be effective three months after the circular is issued.
New Auction Mechanism for Price Discovery
SEBI has also announced the implementation of a special call auction mechanism for price discovery of scrips of listed investment companies (ICs) and listed investment holding companies (IHCs).
“In order to address the above concern, based on the deliberations with various stakeholders including stock exchanges, public comments and recommendations of Secondary Market Advisory Committee of SEBI, it has been decided to put in place a framework for “special call auction with no price bands” for effective price discovery of scrips of such ICs and IHCs,” said SEBI, in another circular on Thursday (20 June, 2024).
Sebi mentioned that some listed ICs and IHCs trade infrequently and at prices much lower than their book value reported in recent audited financial statements.
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These companies usually don’t have daily operations and instead hold investments in various asset classes, including stocks of other listed companies.
To address these issues, SEBI will implement a special call auction framework with no price bands to better discover the true value of these investment companies and investment holding companies.
Eligible companies will receive a 14-day advance notice. If the call auction doesn’t succeed on the first day, it will continue daily until the price is discovered. This process will only happen once a year.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing.
