The Hindu Business Line : SEBI plans to seek OTCEI revival via `call auction'

THE Securities and Exchange Board of India is working out a proposal aimed at reviving the Over The Counter Exchange of India (OTCEI), which has been suffering from a lack of takers in recent years. The regulator would like the exchange to try out a mechanism called `call auction' as a means of revival.

According to Mr G.N. Bajpai, SEBI Chairman, the board would like to breathe new life into OTCEI, an exchange that was set up for imparting liquidity to small-cap companies. The idea was to provide a trading platform to a specific niche in the corporate sector.

Batching orders for simultaneous execution at a single moment in time at a single price is the essence of call auction trading. It contrasts with a continuous market where a transaction is made any time buy and sell orders meet in price, and where price normally fluctuates as the orders meet. However, because its determination is based on the full set of orders, the clearing price in a call auction can be thought of as a consensus value.

Very small companies, Mr Bajpai said, often have to deal with a host of special issues - pint-sized capital bases, absence of sustained trading in their stocks, lack of compliance owing to sizeable costs. In many cases, the promoters concerned would like to delist these companies from the bourses. The regulator, aware of the intention of the promoters, would ensure that investors' interests are not harmed in any manner.

Call auction market, it is pointed out, has a number of advantages. It reduces strain on stock exchanges, brokers, depositories, depository participants and custodians; this is because of segmentation of a large number of stocks that are illiquid into a separate category. There is increased visibility and attention on such illiquid counters.

Its algorithm would perhaps work like the present mechanisms — NEAT or BOLT. Orders are to be routed through recognised members of the exchange and the post-trade operations would be handled by clearing corporation. The market, therefore, need not create new infrastructure except one-time cost of software development for this specific reason.

`Calcutta SE on feet soon': The recently-superseded Calcutta Stock Exchange should soon be back on its feet, the SEBI Chairman indicated on Tuesday while talking to newspersons. The exchange, the fifth regional bourse to see such regulatory action, has been put under an administrator (Mr T.K. Das) for one year.

``Certain issues related to risk management were involved,'' Mr Bajpai said, adding that the administrator has been deputed to address these issues and advise the regulator on the progress. ``We should see CSE back in action once the process is over satisfactorily,'' he added.

Earlier, the regulator informed at a meet on investors' education that it was trying to promote the principles of demutualisation and corporatisation of exchanges. This was part of its plan to move towards a system marked by greater disclosures. Also, investors were being advised to take advantage of recent developments like shorter settlement cycles (T+2), risk-management tools and introduction of derivatives.

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