The Securities and Exchange Board of India (Sebi) on Friday announced additional controls to check volatility in stock prices by extending the pre-open call auction mechanism to all the scrips listed on stock exchanges that are not categorised as illiquid, with effect from April 1.
The move is expected to reduce the wide fluctuations in stock prices – due to overnight corporate action or simply wrong order entries by participants – seen early on in a trading day.
On Friday, for example, Suzlon Energy, which announced disappointing numbers after market hours the previous day, dropped 17% to `19.75 on BSE within minutes of opening, only to recover over the next five minutes, to Rs20.70.
Similarly, Balrampur Chini Mills, a traders’ favorite, rose 10.68% to Rs51.80 at 9.16 am, but fell to Rs47.50 within minutes. It finally closed the day at Rs50.85.
Vinay Agrawal, executive director - equity broking, Angel Broking, believes the mechanism will ensure price stability in the initial minutes. “Also, it reduces chances of errors like putting wrong prices. But as far as participation is concerned, I do not see any jump due to this move.”
Sebi has also decided to make trading in illiquid scrips mandatorily through periodic call auction sessions only. The periodic call auction session for all the illiquid scrips – to be identified by exchanges based on their daily average trade volumes – will be of one hour each, with the first session starting at 9.30 am.
Rikesh Parikh, vice-president - market strategy and equities, Motilal Oswal Securities, believes this mechanism will aid in proper price discovery for such illiquid scrips.