NSE, BSE to launch pre-trading call auction from 18 October

The country’s premier bourses—the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)—will start the 15-minute pre-open session call auction from 18th October, PTI reports.

“The pre-open session call auction will be launched from 18th October. The mechanism will start simultaneously on both the bourses,” National Stock Exchange managing director and chief executive officer Ravi Narain said today.

In July this year, the Securities and Exchange Board of India had given the green signal for the introduction of the pre-open session call auction on the bourses. In a call auction practice, participants indicate their willingness to buy or sell units of a security by placing an order for a number of units at the prevailing price, all before the opening of trade.

The mechanism, known as ‘pre-open session call auction’, will last for a period of 15 minutes (from 9am to 9:15am) and will be introduced on a pilot basis by the BSE and NSE. According to analysts this system would reduce the quantum of volatility, typically visible in the first few minutes of trade. Experts believe that this mechanism will help both retail as well as institutional investors.

“This system will reduce price volatility due to multiple matching of orders at a single price, better price discovery and also dilute market impact,” a senior official at the BSE explained. “Another advantage of this mechanism is a fairer market, especially for small, non-professional investors, because all trades get executed at the same price.”

According to an exchange official, a uniform price band of 20 per cent will be applicable to all eligible securities during the pre-open session. In the first 15 minutes, investors can place orders for eight minutes, on the basis of which the exchanges will determine the rates at which trading will happen.

Initially the call auction session will be applicable for those stocks which are the part of the Sensex and the Nifty. The Sensex, the benchmark index of the BSE, consists of 30 blue-chip stocks and the Nifty—the NSE barometer—is constituted of 50 stocks.


India’s wealth may double to $6.4 trillion by 2015: Credit Suisse report

New Delhi: India’s robust economic growth is likely to drive the country’s fortune to a whopping $6.4 trillion in the next five years, a nearly two-fold jump from the current wealth, says a report.

According to the first Credit Suisse Global Wealth Report, India’s total wealth has trebled in a decade to $3.5 trillion. By 2015, the country’s wealth could nearly double to $6.4 trillion, PTI reports. Besides, the global wealth, which stood at $195 trillion will rise by an impressive 61 per cent to $315 trillion by 2015, primarily driven by the robust economic expansion in the emerging markets.
Interestingly, Asia Pacific boasts of more billionaires than Europe. There are over 1,000 billionaires globally, of which 500 are in North America, 245 in Asia Pacific and 230 in Europe. The report said that there were 24 million high-net-worth individuals (HNIs) whose average wealth per adult was in the range of $1-$50 million. China has over 800,000 HNIs, India has about 170,000 and the rest of the Asia Pacific has over 4 million HNIs.

Meanwhile, in terms of the countries generating maximum wealth, the US emerged as the topper with a total of $54.6 trillion of household wealth, followed by Japan at $21 trillion and China at $16.5 trillion.

Notably, most parts of Asia Pacific–ranging from commodities-driven economies such as New Zealand and Australia, to fast-growing emerging economies such as China, India and the Association of Southeast Asian Nations–have recorded an exorbitant growth of 100 per cent to almost 400 per cent in the average wealth per adult. This growth is much higher than the average global wealth per adult growth rate of 42 per cent.

“The Report confirms that Asia Pacific countries, which now make up the bulk of the world’s middle class of emerging consumers, are driving the growth of the world’s wealth,” Credit Suisse CEO (Asia Pacific) Osama Abbasi said. Also, the middle segment of the wealth, which is composed of one billion individuals whose average wealth per adult falls in the range of $10,000 to $1 million, is located in the fastest-growing economies of the world that hold one-sixth or $32 trillion of global wealth. In total, almost 60 per cent or 587 million individuals in the middle segment of the wealth pyramid are located in the Asia Pacific region.
The report also pointed out that if historical level growth trends continue, the total household wealth in China could rise 111 per cent to $35 trillion by 2015, outstripping Japan, to become the second highest in the world.


Regulator missed the boat on insurance company disclosures, says E&Y partner Ashvin Parekh

Even as IRDA readies its guidelines for insurance company IPOs, there are questions over the quality of disclosures mandated and whether investors would really be able to analyse the prospects of an insurance company

Even as insurance companies are waiting for guidelines on Initial Public Offerings (IPOs) to be issued by the Insurance Regulatory and Development Authority (IRDA), Ashvin Parekh, partner and national leader – Global Financial Services, Ernst & Young Pvt Ltd, has sharply criticised the regulators for dragging their feet over disclosure norms of insurance companies, raising the question whether investors are in a position to evaluate an IPO from an insurance company.


Speaking about the challenges in the valuation process of insurance companies at a seminar in Mumbai recently, Mr Parekh said, “Disclosures for profitability of different product lines should have been made long ago. It would have helped not just for IPOs, but also for corporate governance. But the regulators have already missed the boat by 7-8 years. The authorities kept dragging their feet on Embedded Value (EV) disclosure even after three committees have gone into it. They kept saying it was too technical for them. If it is introduced, now it is impossible for investors to get (an) accurate picture from the disclosure that will be submitted to regulators as per the new guidelines. The regulators should have taken the lead, but confirmed the age-old belief that business is always ahead of regulators.”


Hemant Kaul, managing director & CEO of Bajaj Allianz General Insurance Co Ltd said, “Correct valuations to shareholders may not be available. It will take a strong promoter and brave investor to complete the IPO.”

According to Mr Parekh, “Insurance company valuations can be done based on Market Consistent Embedded Value (MCEV). The valuation of Indian life insurance companies will be done differently than their counterparts from Europe because of the ‘savings’ aspect (rather) than ‘protection’. The liability from protection is much less. The valuation of a general insurance company will be trickier due to the element of reinsurance, risk on balance sheet and volatility due to external factors like calamities, etc. Life insurance in India is more stable due to (the) ‘savings’ aspect. The actuarial surplus is an important parameter for judging an insurer. The valuation should consider 14.4% taxation impact on actuarial surplus. LIC paid Rs3,800 crore tax last year on actuarial surplus. For an IPO, it is important to look at underwriting profit with not much impact from investing profit.”


He added, “There is no benchmark available to offer direction for valuation and regulators will have to come up with it.” There are three elements that make up the basic concept of MCEV: free surplus allocated to covered business, required capital, and VIF (value of in-force covered business).


The current guidelines specify that an insurer in business for 10 years can go for an IPO, but companies are trying to shorten this period. The booming IPO market will only motivate them more to launch a successful IPO.


The IPO will also provide an avenue for foreign investors holding up to 26% stake to dilute stake if they choose to do so. Gerry Grimstone, chairman, Standard Life told reporters last week at a CII insurance summit, “We would not like to dilute at 26% and (would) like to be invested in India. At the same time, we do not know if we want to increase our shareholding to 49%.”


As it is, the accounting process of insurance companies is complex. Frédéric Tremblay, actuarial consultant, Industrial Alliance, Corporate Actuarial Services, Canada, recently wrote in a report: “The financial results of life insurance companies are very complex to analyse. They are prepared according to accounting and actuarial principles varying from one country to another. The financial community often uses the price-to-earnings ratio as a tool to analyse and compare companies. The profits generated by the company in one year are no guarantee of the future. It is impossible to determine the value of a company using these simple results. Everything around a life insurance company is tied to solvency and the nature of the products sold is long term, which makes this type of business unique.”


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