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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