SEBI’s call auction absurdity: A trade of 1 share wipes off Rs1.72 crore of market cap

Hind Industries, a small-cap company, saw its market capitalisation get decimated by Rs1.72 crore over a single trade of a single share on Wednesday! This is a result of SEBI’s newly-introduced call auction system of tackling illiquid counter

On Wednesday, Rs1.72 crore of market capitalisation was wiped off, in a single trade of just one share, in Bombay Stock Exchange (BSE) listed scrip—Hind Industries, points out investor Bosco Menezes. This trade took place in the much-touted and controversial Periodic Call Auction System (PCAS) window, introduced by Securities Exchange Board of India (SEBI), where illiquid scrips are traded. This clearly means that PCAS system is extremely susceptible to manipulation—exactly what the SEBI tried to counter through PCAS!

Here is what happened yesterday.
 

In the BSE’s PCAS window, just one share was traded at Rs 38.10, which is apparently the lower circuit filter and the first trade since 29 May 2013. Its previous close was Rs40.10 (i.e. 29th May). This means, roughly Rs1.72 crore of market capitalisation of Hind Industries was destroyed with a single trade. In fact, this isn’t helping the liquidity situation because the total traded volume was just one share!
 

What is more shocking is that Hind Industries was actually a healthily traded company, with decent volumes, at least by its small-cap standards. It wasn’t until the PCAS system introduced by SEBI which termed the company ‘illiquid’.
 

Hind Industries saw 78,939 shares traded in January 2013, followed by 31,525 shares in Feb 2013, and thereafter a volume of 56,873 shares in March 2013. This is a cumulative of 167,337 shares, or roughly 2,700 shares traded daily, over the three month period ending March 2013 (i.e. 62 trading days), just prior to the inauguration of the PCAS system. Last year it was greater than 1,600 shares and the year prior to that it was greater than 2,250 shares. These are decent numbers of shares traded for a small-cap company.
 

What happened after PCAS system came into force? The company became ‘illiquid’ overnight. The average daily traded volume tanked over 95%! In May, only 2,673 shares were traded over 23 trading days (and works out to 116 shares daily). In April, it was slightly better though, with 982 shares traded daily, but still way below the 2,700 shares in the first calendar quarter.
 

So much for SEBI’s effort to infuse ‘liquidity’ and “curb manipulation” through a separate window. This puts many counters at the risk of price manipulation (whether by the promoter or someone else). We had written about SEBI’s flawed PCAS policy in the past. You can access them below:
 

Curbing manipulation in illiquid stocks: Another harebrained idea by SEBI?
 

Bombay Stock Exchange declares 2,050 companies as ‘illiquid’

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    COMMENTS

    Sreeselva

    7 years ago

    Sreeselva

    I offer my support to the movement

    1. City I belong to - Bangalore

    2. Willingness to contribute financially - Yes

    3. Willingness to add their name as petitioners - Yes

    4. Willingness to attend court hearings - No

    imran

    7 years ago

    Imran from Trivandrum, Kerala

    1. City I belong to - Trivandrum

    2. Willingness to contribute financially - Yes

    3. Willingness to add their name as petitioners - Yes

    4. Willingness to attend court hearings - Sorry.

    SS

    7 years ago

    I am a genuine small investor and SEBI's idea is hurting a lot. I am holding a good profit making company for one year now - but not easy to sell. I hope to just collect the dividend till SEBI gets better sense. The price and volume are subdued due to this rule. I have already made up my mind to stay away from this segment because of this stupid rule even when there are good companies with attractive valuations - mind you SEBI, I am a genuine investor with a minimal portfolio churn.

    If I am an owner I would hate to have a step motherly treatment to my company, where investors avoid my company because of SEBI's mindless action.


    It seems like the decision was purely academic. I doubt whether anyone in the panel is a significant investor in these companies and could think genuinely from a practical investors point of view or from owners point of view.

    I am all for a PIL:

    1. City I belong to - Bangalore

    2. Willingness to contribute financially - Yes

    3. Willingness to add their name as petitioners - Yes

    4. Willingness to attend court hearings - No

    Neeraj

    7 years ago

    Recently Finaicial Express has covered PCA mechanism. The link is:-
    http://www.financialexpress.com/news/cal...

    Call auction window for illiquid stocks fails to find many takers

    FE Bureau : Mumbai, Jul 13 2013, 00:24 IST

    More than three months have passed since the Securities and Exchange Board of India (Sebi) introduced the periodic call auction mechanism for illiquid stocks, but market participants are still questioning the merits of the practice as it has led to a notable drop in trading volumes on these stocks.

    According to Bloomberg data, nearly 50% of the stocks under illiquid category have seen a drop in volumes since April. Stocks like Mafatlal Industries, Pioneer Distilleries, Hindoostan Mills, DCM Shriram Industries, Lancor Holdings, Anjani Portland and Nahar Capital have seen their volumes halve when compared to volumes seen in April before the periodic call auction was introduced.

    Periodic call auction mechanism refers to a system wherein buy/sell orders are pooled for a predetermined period of time, after which the orders are matched and executed. Sebi is of the belief that call auction mechanism lowers the probability of speculative trades done at artificial prices.

    However, according to an industry veteran, the system of 4-5 auction windows in a single day has made trading difficult with many investors ignoring the segment due to the uncertainty in the execution of trades

    There seems to be no such precedent in any other leading market globally. Many investors find it cumbersome to trade in these illiquid windows. Most stocks have seen a fall in turnover and it cannot be said that only speculative trades have vanished, said the co-head of a domestic brokerage, wishing not to be named.

    In February, Sebi stated that periodic call auction sessions of one hour each would be conducted throughout the trading hours with the first session starting at 9.30am. Market players, however, say that the mechanism has made trading in these stocks more complex, thereby driving away even the genuine investors.

    Brokers further say if Sebi is keen on continuing with the auction windows, then it should at least cut down the number of such sessions each day so that a larger number of orders can be pooled in a shorter duration of time. This, they say, would enhance the probability of trades getting executed.

    The biggest hindrance in the auction window is uncertainty of execution. Even if you place an order near the equilibrium price, there is a probability that it would not be executed. That defeats the whole purpose of the system aimed at efficient price discovery. These factors become major concerns at a time when the overall market scenario is also bleak, said another broker.

    While market participants have discussed this matter with the regulator, it is believed that Sebi would like to wait for some more time before reviewing the current mechanism.

    Interestingly, the regulator has implemented the periodic call auction window in the segment for small and medium enterprises (SMEs) launched by BSE and NSE. Market participants have already suggested to Sebi that the current system should be done away with and only one auction session should be allowed in one day.

    Manoj Chakraborty

    7 years ago

    Manoj Chakraborty
    I offer my support to the movement

    1. City I belong to - Bangalore

    2. Willingness to contribute financially - No

    3. Willingness to add their name as petitioners - Yes

    4. Willingness to attend court hearings - No

    Subbu Murugesan

    7 years ago

    I offer my support to the movement

    1. City I belong to - London

    2. Willingness to contribute financially - Yes

    3. Willingness to add their name as petitioners - Yes

    4. Willingness to attend court hearings - No

    Neeraj

    7 years ago

    I offer my support to the movement

    1. City I belong to - Hissar, Haryana

    2. Willingness to contribute financially - Yes

    3. Willingness to add their name as petitioners - No

    4. Willingness to attend court hearings - No

    Neeraj

    7 years ago

    http://articles.economictimes.indiatimes...

    http://www.anmi.in/admin/anmiatworkfiles...

    Everybody knows that there is a perfect correlation between fall in cash mkt./delivery volumes & introduction of PCA in stocks. But SEBI is far too arrogant to realise its mistake & rectify it. Stock Brokers, one by one, are banning buy/sell in PCA stocks, which now comprise 60% of all listed & active stocks in Indian Stock Markets, making things even worse. - A Concerned Investor

    Archana Chirawewala

    7 years ago

    Name: Archana C
    1. City that they belong to: Mumbai

    2. Willingness to contribute financially: No

    3. Willingness to add their name as petitioners: Yes

    4. Willingness to attend court hearings when free: Yes

    Abhay Munot

    7 years ago

    Abhay Munot
    I offer my support to the movement

    1. City I belong to - Chicago, USA

    2. Willingness to contribute financially - Yes

    3. Willingness to add their name as petitioners - Yes

    4. Willingness to attend court hearings - No

    Vijayraghav rao

    7 years ago

    We need more of good governance and less of needless intervention into markets. The sebi needs to focus on big manipulators rather than come up with ill conceived ideas to destroy small cap market

    Siva

    7 years ago

    I think a PCA exclusion list would save a lot of time for SEBI and investors. What crap!! Next, SEBI might propose going back to the old system of transacting share certificates!!

    Bosco Menezes

    7 years ago

    PCAS - New List is out today .... 274 companies in the list, many well known names such as Kirloskar Industries, LG Bala Bros, Wendt, Rajshree Sugar, Oriental Carbon & Chemicals, Alkyl Amines, Warren Tea, ITD Cementation, Panasonic Appliances, Sandesh, Rishi Lazer, Ador Fontech, MRO-TEK, APW President, Rane (Madras), Asian Hotels (West) .... they will go into PCAS from July 8th.

    Announcement is here : http://www.bseindia.com/markets/MarketIn...

    aditya deorah

    7 years ago

    aditya

    money life subscriber
    [email protected]




    1. City I belong to - kolkata

    2. Willingness to contribute financially - Yes

    3. Willingness to add name as petitioner - Yes

    4. Willingness to attend court hearings when free - Yes

    Shankarnarayan

    7 years ago

    Few more ill effects of PCA :

    1.)Potential multibaggers are dying a slow death. Multibaggers , atleast during their initial stages of upmove, usually have characteristics like relatively unknown,low liquidity,low institutional holding etc. These are exactly the kind of stocks in PCA.

    2.) Also many retail investors prefer low priced scripts than the high priced ones. A kind of feeling of safety buying a Rs 50 stock than a Rs 500 stock. Such investors are now discouraged to participate.

    I am ready to contribute anyway to fight this.

    After 25 Years, Does SEBI Inspire Trust?

    If companies with solid reputation in the marketplace can indulge in manipulation ordinary investor is left with a feeling of being cheated

    Recently, the capital market regulator completed 25 years of its existence. Unfortunately, despite its best efforts, the Securities Exchange Board of India (SEBI) has not achieved much success. At one time, it was expected that, with the advent of...

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  • Set up SIT to investigate showering of one largesse after another on RIL, says Sarma

    According to the former secretary to the GoI, the whole gamut of showering one largesse after another on Reliance Industries should be subject to an independent investigation by a special investigation team or SIT

    EAS Sarma, former secretary of the Government of India (GoI), has said that the whole gamut of showering one largesse after another on Reliance Industries (RIL) should be subject to an independent investigation and such an investigation will unravel the hidden links in this web of improprieties.

     

    Mr Sarma, in a letter to prime minister Dr Manmohan Singh, said, “If the Central Bureau of Investigation (CBI) secures adequate autonomy, it could be entrusted with the task of investigating these improprieties. However, I do not feel quite hopeful of the government’s intentions against the background of the statements being made by some of your esteemed colleagues. In that case, an investigation by a Special Investigation Team (SIT) should be instituted. I feel that the stakes involved in this matter are far too heavy to be taken lightly.”

     

    In his latest salvo, Mr Sarma, cited a news report that says the petroleum minister is once again trying to bypass the mandatory provisions incorporated in the Production Sharing Contract (PSC) in the name of “national security” and extend additional concessions to RIL.

     

    “This is unacceptable. It will amount to a gross impropriety. In fact, what the petroleum minister is now trying to do is to go against the letter and spirit of Comptroller and Auditor General’s (CAG) report on PSCs and dole out yet another huge largesse to RIL. No wonder that those who had opposed such concessions in the past were forced to give up the ministerial portfolio of petroleum and natural gas,” the former secretary said.

     

    According to Mr Sarma, the Directorate General of Hydrocarbon (DGH) had recommended to the ministry that RIL should be directed to relinquish 86% of the KG-D6 block area as envisaged in the PSC, including that in which discoveries were announced belatedly.

     

    “It is ironic that the ministry should choose to interpret the same PSC to hike up the gas price and quote “national security” and to deviate from the PSC, when it came to relinquishment of the franchised blocks as per the contract. It is nothing but a deliberate ploy to benefit RIL at the expense of the public,” he said.

     

    Mr Sarma said, “The minister’s earlier statement that India was “floating on oil”, apparently on an assurance given by RIL, should remind the government how the earlier assurances by RIL had turned out to be totally misplaced, causing a debilitating damage to the interests of small investors and the interests of the downstream power developers. References by the minister to ‘import’ lobbies are apparently aimed to obfuscate the main issue of granting undue benefits to RIL!”

     

    The former secretary had written several letters to the PM and petroleum ministry on the improprieties committed by the United Progressive Alliance (UPA) government in dealing with RIL’s gas project in Krishna Godavari (KG) Basin in Andhra Pradesh.

     

    Last year in August, Mr Sarma had alleged that there were irregularities committed in the pricing, allocation and the management of the natural gas from KG Basin to the detriment of the public interest at the macro-level and to the detriment of Andhra Pradesh at the state level.

     

    The Krishna-Godavari basin is spread across over 50,000 sq km in the Krishna River and Godavari River basins in Andhra Pradesh. The site is known for the D-6 block where RIL discovered the biggest natural gas reserves in India in 2002. It was also the world’s largest gas discovery of 2002.

     

    In November 2012, the former secretary, in his letters have said, “The exploration and development effort put in by RIL in the KG Basin, the technology adopted, the resources discovered, the costs incurred, the claims made on pricing of gas and the costs to be reimbursed are all matters that impinge directly and indirectly on the public exchequer. All such matters should be subject to public scrutiny and RIL should be held accountable to the public”.

     

    You may also want to read...

     

    Why the petroleum ministry is reluctant for a CAG audit of RIL?

     

    RIL’s KG basin project is affecting irrigation, rice cultivation

     

    Who is hurting Andhra Pradesh in the KG Basin gas supply, asks Sarma

     

    Don’t let private cos override public interest in KG Basin: EAS Sarma

     

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    User 

    COMMENTS

    P M Ravindran

    7 years ago

    Ignorance, some had quipped, was bliss. It seems very true in the Indian context. There is nothing but 'loot and brazen it out' that the govt is indulging in these days. And I am equally worried about the citizens who do not fight for justice. May God bless, Anna, Kejriwal, Baba Ramdev and their ilk who are advocating a 2nd freedom struggle on Gandhi's steps and also all those who are following Netaji too.

    SuchindranathAiyerS

    7 years ago

    This would apply to almost every successful company in India sinc 1947. Only cronies were permitted to succeed. Others were even denied licenses!

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