Sebi modifies pre-open call auction duration for IPOs, relisted scrips, effective September 18

Capital market regulator Sebi on Thursday announced certain changes in the rules applicable to call auctions in the pre-open session for initial public offers (IPOs) and relisted stocks, with effect from September 18, 2024. The move is aimed at preventing instances of price manipulation owing to the creation of false demand and supply, and protecting investors’ interests.

Zee Business had reported the news about potential changes in the rules on February 10, 2023. 

Here are some of the key changes announced by Sebi, as per the circular: 

• Pre-session call auction rules to be changed with higher exchange surveillance 
• Pre-opening session to be 60 minutes long from 9 am to 10 am
• Orders will be allowed to be placed, modified or cancelled from 9 am to 9:45 am
• System-driven random closure of session to take place between 9:35 am and 9:45 am
• In the next 10 minutes (9:45 am-9:55 am), order matching, confirmation to take place
• Last five minutes (9:55 am-10 am) to be a buffer period to facilitate the transition from pre-opening to normal trading 
• Cancelled orders will be notified on broker terminals and exchange websites in real time
• Stock exchanges to generate alerts based on the following indicative parameters:
• The cancelled  quantity  for  a  particular  client  exceeds  5 per cent  of  total  cancelled  quantity across the market during the pre-opening session 
• The value of the cancelled quantity for a particular client exceeds 5 per cent of the total value of the cancelled quantity across the market during the pre-opening session
• The cancelled quantity for a particular client exceeds 50 per cent of the total quantity placed by that client during the pre-opening session 
• The value of cancelled quantity for a particular client exceeds 50 per cent of the total value of the quantity placed by that client during the pre-opening session 
• The modification of prices is significantly away from the previously placed order
• Stock exchanges can also have additional parameters for  generating alerts
• Stock exchanges shall provide a report to Sebi by the end of the day
• Exchanges will seek explanation from the clients for the cancellations/modifications based on analysis

Why new rules?

It was observed that during the call auction in the pre-opening session for certain IPOs and relisted scrips, orders were placed at higher prices in large volumes and a significant portion of such orders was cancelled just before the closure of call auction session, according to Sebi. 

“This may have created false demand and supply and possibly manipulating the price of the scrips to the detriment of common investors,” it wrote in the circular.