The Bombay Stock Exchange has identified those stocks which are illiquid as per SEBI’s new definition and will move them to a separate trading window which will begin from 8th April. Some well known companies are also in the list
Acting on a recent directive from the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), vide notice 20130401-39, has shortlisted all the ‘illiquid’ stocks and moved them to a separate window which will be traded from 8 April 2013.
The number of such stocks is 2,050 and represents over 50% of the ‘actively’ traded stocks on BSE! Some of the illiquid stocks which maybe familiar to investors include Dr Agarwals Eye Hospital, Asit C Mehta Financial Services, SKP Securities, Almondz Global Securities, Lumax Automotive Systems, Allsec Technologies, Bannari Amman Spinning Mills, Indus Fila, Rane Brake Lining, Rane Engine Valve, Ginni Filaments and Khaitan (India).
As per our analysis on the BSE website, the total number of stocks on BSE is 6,922. Out of this, only 3,888 stocks (including ETFs and such) are ‘active’, while 1,312 stocks are suspended and 1,722 stocks are delisted. The number of so called ‘active’ stocks is little over 50% of the BSE’s entire universe. This means, only 1,838 or just 26.55% of the entire BSE universe will be remaining and actively traded in the ‘normal’ segment of the exchange, if the illiquid stocks are moved to a separate window.
The implications of this move could be far reaching. This will further reduce the number of stocks traded on the exchange, making it difficult for investors to invest in niche or specialised companies (which are normally illiquid).
We had written about this in an earlier post. You can read about it here: Curbing manipulation in illiquid stocks: Another harebrained idea by SEBI?
The illiquid stocks which have been shortlisted will be moved to the “periodic call auction” window from 8 April 2013 onwards, where marketmen can trade on such stocks. The liquidity situation will be monitored by the exchanges every quarter. Every quarter, the exchange will review liquidity and add or remove stocks from the normal segment to the so called “periodic call auction” window where illiquid stocks are traded.
These stocks which are part of the 2,050 illiquid stocks, according to BSE, have failed to meet SEBI’s criteria for meeting definitions of liquidity for the quarter ended March 2013. As per SEBI circular no. CIR/MRD/DP/6/2013 dated 14 February 2013, a scrip is shortlisted as illiquid if all the following conditions are met:
The entire list of 2,050 stocks can be found here: (click here)
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No of trade and TOTAL No of shares get traded depends upon SMALL or LARGE Eq Capital and also on Face value of share and stock price also.
But SEBI formula has put all Co in one single category with Rs.3 Cr capital and Rs.30 Cr eq capital.
SEBI should come out with SPECIAL COMPULSORY DELISTING offer for investor for all this stocks as they have power to tackle all Co for benefits of investors.
I rang the Customer Care number of HDFC Securities & the representative informed me that such scrips can no longer be traded through on-line trading, they have to be traded via tele-broking (call-n-trade) !!
Whether this is a permanent situation, or temporary, the representative could not say. So i have written to the customer care email id asking this question, and for resolution to this problem. Got an automated reply that they will get back within 1 business day.
Anyway, looking at the trading in these iliquid scrips today, it does seem like even the existing liquidity has been curtailed. Whether this will improve after people get used to the new system is to be seen. In 3-6 months we will know for sure.
The new rules besides affecting shareholders of the so-called "illiquid" group negatively, could also impact all other investors. Because if an investor needs to take money out of the market and finds it too hard to liquidate an "illiquid" stock because of the new rules, he will sell a "liquid" stock instead. So even investors who do not hold these "illiquid" stocks will be affected to that extent.
Signature mismatch at registrars end, objections, give signature verification from nationalized banks. So if demat is permitted in all these stocks,(only those that trade above the face value of INR10/= or whatever the face value.) Only those should be dematted. The rest are a waste and junk and we dont know when they will recover if ever...
Now will the stock exchange be auctioned off through some separate window?
1)The recommendation could very well have been to extinguish shares because they are 'found' to be illiquid & mostly owned by 'outside' shareholders who also happen to be retail investors .
2)The retail investor's interest is being protected by allowing him to let him keep his illiquid shares.( by not forcing him to sell within some stipulated time)
3)Finally lets be grateful, the retail investor has not been burdened with the responsibility of creating liquidity in these illiquid shares