To minimise volatility and price manipulation on listing day, stock market regulator SEBI has extended the call auction concept to initial public offerings (IPOs) and re-listings.

SEBI has prescribed 100 per cent margin requirement for an issue size of up to Rs 250 crore.

For issue sizes greater than Rs 250 crore, extant regulations shall apply.

SEBI has also prescribed trade controls for IPOs and re-listed scrips on listing day.

For an issue size of upto Rs 250 crore, if equilibrium price is discovered in the call auction, then the price band in the normal trading session shall be five per cent of the equilibrium price. If equilibrium price is not discovered in the call auction then the price band in the normal trading session shall be five per cent of the issue price.

Trading shall take place in the trade-for-trade segment for the first 10 days from commencement of trading; during this time delivery of the scrip is compulsory.

For issue sizes greater than Rs 250 crore the price band in the normal trading session will be 20 per cent of equilibrium price if it is discovered or other wise 20 per cent of the issue price.

Determining factor

A call auction in the pre-open session of 60 minutes (from 9 AM to 10 AM) will be used to determine the equilibrium opening price of the newly listed / re-listed stock.

Orders can be entered, modified and cancelled in the first 45 minutes. The next 10 minutes would be for order matching and trade confirmation and the remaining five for smoothly transitioning into the normal market.

SEBI said that there shall be no price bands in the pre –open session and market orders will not be accepted.

The price at which the maximum quantity is traded is fixed as the equilibrium or opening price. If more than one price has the same highest quantity then the price which has the least order imbalance (cumulative buy quantity minus cumulative sell quantity) is deemed to be the equilibrium price.

For re-listed stocks, if a tie still persists, then the process will be repeated until the equilibrium price is discovered.

Limit orders shall be matched only with limit orders. All pending unmatched orders in the pre-open session would be shifted to the order book of the normal market following time priority.

All outstanding orders shall be moved to the normal trading session at their limit price.

Implementation

SEBI has directed exchanges to implement these circulars within four weeks, inform all members, disseminate the information their website, change byelaws rules and regulations and communicate the implementation status of this circular in their monthly report.

>raghavendrarao.k@thehindu.co.in

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