Effective April 1, illiquid stocks would be traded only through the periodic call auction mechanism on stock exchanges instead of the existing order-driven system in the normal market, said SEBI.
Market regulator’s decision was based on the recommendations of its Secondary Market Advisory Committee (SMAC).
Call auction in these stocks would be done every one hour starting 9.30 a.m. on each trading day, said SEBI.
3 activities
Once this is implemented, trading in illiquid scrips would be done through three distinct activities. The first activity includes order entry, order modification and order cancellation of 45 minutes duration. The second activity is for order matching and trade confirmation and would last for eight minutes.
The final seven minutes would be a buffer period for closing the current session and facilitating the transition to next session taking the total time for the call auction session to one hour. The first session would be randomly closed during last one minute of order entry between the 44th and 45th minute. This would be system driven.
SEBI said stocks having an average daily trading volume of less than 10,000 shares with the average daily number of trades of less than 50 and classified as illiquid by all stock exchanges (where the scrip had been listed) as criteria for illiquidity.
Exchanges have to review illiquid criteria of scrips at the start of every quarter.
Exit option
These scrips can exit from the call auction mechanism to the normal trading if they have remained in session for at least two quarters and are not illiquid.
SEBI has mandated a price band of 20 per cent for illiquid scrips.
All unmatched orders at the end of an auction session would be purged, and in case the market wide index circuit-breaker is triggered, the session would be cancelled and all orders purged, said SEBI.
If the lowest selling price entered is less than or equal to the maximum buy price entered into by the same entity results into a trade, the regulator will impose a penalty on a daily basis and credit the investor protection fund.
SEBI has also decided to implement the pre-open call auction session in all exchanges with active trading and to all liquid scrips.