Regulations
SEBI rationalises periodic call auction mechanism
SEBI’s new circular includes modifications in the trading criteria of illiquid scrips in periodic call auction, based on the company’s market capitalisation and profitability
 
Market regulator Securities and Exchange Board of India (SEBI) has modified certain conditions on periodic call auction mechanism by modifying how it classifies the so-called illiquid stocks, including modifications based on market capitalization and profitability in the trading criteria on illiquid scrips.
 
A stock would now be classified as illiquid if its average daily turnover is less than Rs2 lakh in the previous two quarters and if it is classified as illiquid at all the exchanges where it is traded. Call auctions will not apply to shares where a company is profitable in at least two of the past three years and not more than 20% of promoters' shareholding is pledged in the latest quarter and the book value is three times or more than the face value. The new rules also exclude companies with a market capitalisation of at least Rs10 crore or which have paid a dividend in at least two of the past three years, SEBI said.
 
SEBI in its circular dated 19 December 2013, rationalised its periodic call auction for illiquid scrips as per feedback of market participants and recommendations received from Secondary Market Advisory Committee (SMAC).
 
Earlier, Moneylife had pointed out that periodic call auction regulation would result in decline in retail investors and good quality small companies would be marginalised. 
 
The following are the modifications:
1. A scrip will be classified as ‘illiquid scrip’ at all the exchanges it is trading, if its average daily turnover is less than Rs2 lakhs during previous two quarters
 
2. Scrips can be excluded if it follows any of the conditions:
a. If a scrip is having more than Rs10 crore average market capitalisation;
b. If a company has paid dividends at least two times during last three years;
c. If a company is profitable at least two out of the last three years and not more than 20% of the promoters’ shareholding is pledged in the latest quarter, and its book value is three times or more than its face value
 
3. Stock exchanges shall move scrips from periodic call auction mechanism to normal trading session if the scrip has remained in periodic call auction for at least one quarter (earlier it was two quarters);
 
4. Stock exchanges may determine the number of call auction session for illiquid stocks. There shall be at least two sessions in a trading day with one uniform closing session across the exchanges in order to have minimum trading sessions and uniform closing session.
 
SEBI in its circular said that, all other conditions for trading in periodic call auction sessions contained in earlier SEBI circulars, dated 14 February 2013, 17th September 2010 and 15th July 2010 will remain unchanged.
 
SEBI has directed all the exchanges to take necessary steps to implement all new modifications from the beginning of the next quarter with making necessary amendments to the relevant bye-laws, rules and regulations. SEBI has also directed exchanges to bring this circular to the notice of all the member brokers of the exchanges and put it on its website.
 
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COMMENTS

Jubin Jose

3 years ago

I appreciate SEBI's move to correct their mistake. It really great that they listen to Market Participants.

Jubin Jose

Bosco Menezes

3 years ago

Vijay Shah, not sure if you are recommening a single Call Auction session a day, or a single continuous trading session.

Given that PCAS is set to continue, albeit with fewer stocks, i too would like ideally to have at least one continuous session a day for the scrips that continue in PCAS.
So we can have either an opening Call Auction session, to arrive at a stable open price followed by a continuous session (pending orders of opening session can be c/f to continuous session), OR a Continuous session followed by a Call Auction session to fix the stable closing price (again pending orders can be c/f).

However a read of the new guidelines suggests there is NO SCOPE for any continuous trading session.

So some key negative elements of the CAll AUction session (such as creating false demand/supply picture only to remove the misleading orders at the fag end of the order entry session) will continue, albeit for a lesser number of scrips.

VIJAY SHAH

3 years ago

THE BEST IDEA THE TRADING HOURS BEGIN FROM 9:15 AM TO 3:30 PM KEEP ALL STOCKS OPEN FROM 9:15 AM TO 3:30 PM

Nilesh KAMERKAR

3 years ago

Simply reversing the decision would rectify the situation . . . but it may not be easy now.

REPLY

Bosco Menezes

In Reply to Nilesh KAMERKAR 3 years ago

Nilesh, i agree. Most logical situation would have been to reverse the earlier decision.
New guidelines while allowing (presumably) a majority of scrips to escape the system, still has elements of arbitrariness. For example :
(1) Criteria of Rs 2 lakh daily avg turnover again seems arbitrary, and rather high in respect to small caps. Many good small caps with small equity & high promoter shareholding, and which invite "investment" interest, rather than "trading" interest, and which have been historically trading a few hundred to a few thousand shares daily, may still not meet the new criteria, thus requiring the use of the 3 additional conditions to escape PCAS. Thus they will still attract the "Illiquid" tag, though many will espace PCAS.
(b) Again, by keeping the bar at 10 Cr market cap, is SEBI suggesting that most manipulation happens in sub 10Cr MCap category ? I dont think so ...
But anyway, we must be thankful for small mercies :-)

Nilesh KAMERKAR

In Reply to Bosco Menezes 3 years ago

If a security is illiquid then so be it. Investors have to live iwth it. It is nobody's job to insist / ensure liquidity.

Moreover, liquidity does not matter as long as trading takes place in a fair manner and at any time during trading hours.

If a stock is illiquid, it also means current owners are not keen on selling their holdings. Why punish them. - by restricting the trading window.

Why would anybody want to encourage trading at the cost of long term investing???


Bosco Menezes

In Reply to Nilesh KAMERKAR 3 years ago

Absolutely right, Nilesh. I could not have put it better.

Why indeed would anyone want to encourage trading at the cost of long term investing !!

Hemant

3 years ago

Insted of scraping the whole stupid system,to save the face they just modify the system.Any way now hardly any worthy companies will remain under PCAS.Thanks for highlighting the problems faced by every one.

REPLY

Bosco Menezes

In Reply to Hemant 3 years ago

You are right, Hemant . Correct approach would have been to scrap the system alltogether. But that would have meant owning up to the total fiasco, which dealt a severe blow to the small & mid-cap market. No one honestly expected that , so i guess this approach was the next best alternative.

arun adalja

3 years ago

here you have to check everytime quotation for buy and sell.automatic trading does not take place you have to grab it just like odd lot system.if buyer is at 10 and seller is also at 10 then buyer or seller hasto grab it and so chances of transaction are less.sebi must remove this mechanism.

Bosco Menezes

3 years ago

Thanks for highlighting the problems with the original PCAS mechanism.

FMC appoints SN Ananthasubramanian as independent director on MCX
FMC has nominated SN Ananthasubramanian as an independent director on the board of MCX, following resignation from retired IAS officer RM Premkumar 
 
Commodities market regulator Forward Markets Commission (FMC), has nominated SN Ananthasubramanian, president of the Institute of Company Secretaries of India (ICSI) as an independent director on the board of Multi Commodity Exchange of India Ltd (MCX).
 
In a regulatory filing, MCX informed that, “FMC has appointed SN Ananthasubramanian, president of ICSI, as FMC nominated independent director on the Board of the company up to 31 March 2016, under clause 1.1(i) of the revised FMC guidelines for constitution of the Board of Directors, in place of FMC nominated independent director retired IAS RM Premkumar, who has resigned from the board.”
 
FMC in its recent order has termed Jignesh Shah, Financial Technologies (India) Ltd (FTIL) and two other directors, Joseph Massey and Shreekant Javalgekar as 'unfit' to run MCX.
 
Earlier in November, MCX appointed Satyanand Mishra, the former chief information commissioner as its new chairman.
 
MCX also recommended to FMC the appointment of Miten Mehta as a shareholder director of its promoter FTIL on its board.
 
Earlier in November, Paras Ajmera, the last nominee of promoter FTIL and Shreekant Javalgekar, managing director and chief executive officer of MCX have also resigned from the commodity exchange's board due to Rs5,600 crore payment crisis at the FTIL-promoted NSEL.
 
On 31st October, Jignesh Shah had resigned as non-executive vice-chairman of MCX after sector regulator FMC issued a notice to him and FTIL. MCX fiasco was due to the imposition of commodity transaction tax (CTT) applied in July and recent payment crisis at NSEL.
 

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SEBI to soon formulate new code on corporate governance: Sinha
According to the SEBI chief out of the listed companies, more than 1,100 are non-compliant of Clause 40A of the Listing Agreement and over 900 entities do not adhere to Clause 49
 
Market regulator Securities and Exchange Board of India (SEBI) will soon come out with a new code on corporate governance based on consultative paper, says a top official.
 
UK Sinha, chairman of SEBI said, new set of corporate governance guidelines for listed companies are being finalised and are expected to be announced shortly.  
 
“For listed companies, I will like to tell you, we are going to do something over and above what is specially mentioned in the Companies Act, in the interest of corporate governance of large corporates,” he said.
 
Formulation of new set of rules for listed companies will be done in consultation with all stakeholders, Sinha said at a corporate governance summit organised by industry body CII.
 
“We have already placed our document for consultation. Our consultation is almost over. So, we are now going to promulgate our rules very soon.”
 
Sinha said out of the listed companies, more than 1,100 are non-compliant of Clause 40A of the Listing Agreement and over 900 entities do not adhere to Clause 49. Enforcement action against such companies is justified, he added.
 
Clause 40A of the agreement deals with minimum level of public shareholding, while Clause 49 deals with corporate governance, with a focus on the constitution of the board and top management.
 
“My request to all of you (corporates) is to help SEBI to ensure that we reach a level that is much higher and which is in keeping with the best in the world,” he said.
 
The SEBI chief assured that the regulator will not veer off from the spirit of Companies Act in formulating the norms.
 
Sinha said there is a need to align ‘our’ rules with the best in the world as there are many corporates already working outside India in a multi-national environment or have aspirations to do so.
 
“Now, we don’t only have the problems of foreign guidelines and standards, also we have to deal with extra-territoriality of foreign laws, we have to cope with them.”
 
Sinha asked companies to show real commitment towards corporate social responsibility (CSR). “The commitment to CSR has to be built as a culture in the organisation.”
 
A joint CII- Deloitte publication titled 'Global Trends in Corporate Governance - since the financial crisis' was released by Sinha at the summit. The paper gives an overview not only of the national trends but also global trends in corporate governance.
 

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