Sebi introduces special call auction mechanism for investment company, holding firm stocks

Markets regulator Sebi on Thursday introduced a special call auction mechanism with 'no price bands' for price discovery of scrips of listed investment companies (ICs) and listed investment holding companies (IHCs).

To start with, the first such special call auction will be conducted in October by stock exchanges based on the latest available audited financial statements of such companies. The subsequent special call auctions will be done as and when the annual audited financial statements are published by the companies.

The development came after Sebi observed that scrips of a few listed ICs and IHCs are being traded infrequently and at a significantly lower price than the book value disclosed by these companies in their latest audited financial statements.

Moreover, these companies generally have no day-to-day operations and hold investments in different asset classes, including in scrips of other listed companies, it added.

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"The variance in the market price and book value of such ICs and IHCs is adversely affecting liquidity, fair price discovery and the overall interest of investors in scrips of such companies," Sebi said in a circular.

With regard to criteria for identification of ICs or IHCs eligible for special call- auction, Sebi said ICs or IHCs will be identified based on the uniform industry classifications provided by stock exchanges; the scrip of ICs or IHCs should have been listed for at least one year and the scrips are not suspended for trading; and total assets of the company invested in scrips of other listed companies should be less than 50 per cent among others.

On the procedure for the special call auction mechanism, Sebi said stock exchanges will initiate the process for special call-auction with no price bands for eligible ICs or IHCs with a 14 days' advance notice to the market.

In case the company is listed on multiple stock exchanges, stock exchanges will coordinate amongst themselves and the date of special call auction session will be uniform across the exchanges.

Such a mechanism will be provided only once a year.

The notice will be disclosed by the stock exchanges on their websites and should include detailed information regarding last traded price, the latest available overall-book value of the company, book value based on the investments in scrips of other listed companies, proportion of assets invested in other listed companies, price of latest buy-back or delisting, if any, offered by the company.

The special call auction session will be treated as successful, if price discovery is based on orders from at least 5 Permanent Account Number (PAN)-based unique buyers and sellers.

In case the scrip is listed on multiple stock exchanges and call auction is successful on any one stock exchange, the price discovered at that stock exchange will form the base for trading at other stock exchanges.

If a call auction is not a success on day 1, it will continue on the next day and till such time the price is discovered.

In order to avoid order spoofing and manipulative activities in the special auction session, stock exchanges will have adequate risk management and surveillance mechanisms in place before conducting such a session.