June 21, 2024
New Delhi, India
The Securities and Exchange Board of India (SEBI) has implemented additional surveillance measures to curb the misuse of pre-open call auction sessions for initial public offerings (IPOs). These new measures aim to enhance the transparency and integrity of the IPO process.
Key Changes in the Pre-Open IPO Session
- Session Duration: The pre-open session will last for 60 minutes from 9 am to 10 am.
- Order Phases:
- First 45 Minutes: Order entry, modification, and cancellation.
- Next 10 Minutes: Order matching and trade confirmation.
- Final 5 Minutes: Buffer period for transition to the normal trading session.
- Random Closures: System-driven random closures will occur during the last ten minutes of the order entry phase (between the 35th and 45th minute).
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Surveillance Mechanisms
- Alerts Generation: Stock exchanges will generate alerts based on specific parameters such as significant price modifications and cancellation of large quantities or values.
- Reporting and Explanations: Stock exchanges must provide detailed reports to SEBI by the end of each trading day and seek explanations from clients regarding their cancellations.
- Real-Time Display: Cancelled orders information will be displayed in real-time for investor decision-making.
Reason for Changes
SEBI’s new measures address the issue of order cancellations at higher prices and large volumes just before the closure of the call auction session, which can create false demand and supply, potentially manipulating the price of the scrips to the detriment of common investors.
Special Call Auction for Listed Investment Companies
In another move, SEBI has introduced a special call auction mechanism for the scrips of listed investment companies (ICs) and listed investment holding companies (IHCs) to enhance price discovery. This mechanism will operate without price bands.
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Key Points of the Special Call Auction
- No Price Bands: The special call auction will not have price bands, aiding in better price discovery.
- Eligibility and Notification: Eligible companies will receive a 14-day advance notice. The first auction is scheduled for October, with subsequent auctions following the publication of annual audited financial statements.
- Continuation of Auctions: If a call auction does not succeed on the first day, it will continue on subsequent days until a price is discovered. This auction will be provided only once a year.
Rationale Behind the Auction
This initiative responds to SEBI’s observations that certain scrips of listed ICs and IHCs trade infrequently and at significantly lower values than their disclosed book values, affecting liquidity, fair price discovery, and overall investor interest.
These changes by SEBI are designed to promote fair trading practices, enhance market integrity, and protect investor interests in the Indian stock market.
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