What are SEBI’s new call auction rules for IPOs, relisted scrips; 10 points

Market regulator Securities and Exchange Board of India (SEBI) has tightened rules related to call auctions in pre-open sessions for initial public offer (IPO) and relisted scrips.

The capital markets watchdog observed that in the call auction in the pre-open session for certain IPO and relisted scrips, orders were placed at higher prices in large volumes and a significant portion was cancelled just before the closure of call auction session. "This may have created false demand and supply and possibly manipulating the price of the scrips to the detriment of common investors," observes the regulator.

To curb the misuse of the call auction session, SEBI decided to modify the current rules related to call auction sessions for IPO & relisted scrips. The new provisions will be applicable from the 90th day of the circular. The stock exchanges have been asked to take steps and put in place the necessary systems for the implementation of the changes to rules.

These are the new norms:

1. In its additional surveillance measures, SEBI says the session will be for 60 minutes i.e. from 9:00 a.m. to 10:00 a.m., out of which 45 minutes will be allowed for order entry, order modification and order cancellation, 10 minutes for order matching and trade confirmation and the remaining 5 minutes will be the buffer period to facilitate the transition from pre-open session to the normal trading session.

2. The session will close randomly during the last 10 minutes of order entry i.e. anytime between the 35th and 45th minute of the order entry window. Such random closure will be system-driven.

3. In addition to this, the stock exchanges will generate alerts based on cancelled quantity if a client exceeds 5% of the total cancelled quantity across the market during the pre-open session.

4. The alert will be generated if the value of the cancelled quantity exceeds 5% of the total value of the cancelled quantity across the market during the pre-open session.

5. If the cancelled quantity for a particular client exceeds 50% of the total quantity placed by that client during the pre-open session, an alert will be generated.

6. The alert will also be sent if the value of the cancelled quantity for a particular client exceeds 50% of the total value of the quantity placed by that client in a pre-open session.

7. If the modification of prices is significantly away from previously placed order(s), exchanges must send an alert.

8. Additionally, the exchanges will provide a report to SEBI by End of Day (EOD).

9. They will seek an explanation from the clients for the cancellations or modifications.

10. To enhance transparency, details of the number and quantity of cancelled orders will also be displayed on the stock exchange website and terminals of trading members in real-time.