**Executive Summary:**
SEBI circular SEBIHOMRDMRDPoD3PCIR202485, dated June 20, 2024, modifies the duration and introduces additional surveillance measures for call auctions in the pre-open session for Initial Public Offer (IPO) and relisted scrips. The changes aim to curb misuse and manipulation during the call auction session. The provisions of this circular will be applicable from the 90th day of issuance of the circular. Stock Exchanges are required to implement the changes and amend relevant byelaws.
**Key Points / Main Content:**
* **Call Auction Duration Modification:**
* The pre-open session will last 60 minutes (9:00 a.m. to 10:00 a.m.).
* Order entry, modification, and cancellation are allowed for 45 minutes.
* Order matching and trade confirmation will occur in 10 minutes.
* A 5-minute buffer period facilitates the transition to normal trading.
* The session will close randomly during the last ten minutes of order entry (between the 35th and 45th minute).
* **Additional Surveillance Mechanisms for Stock Exchanges:**
* Stock exchanges must have adequate surveillance to prevent manipulation.
* Alerts should be generated based on these parameters:
* Cancelled quantity for a client exceeding 5% of the total cancelled quantity across the market.
* Value of cancelled quantity for a client exceeding 5% of the total value of cancelled quantity across the market.
* Cancelled quantity for a client exceeding 50% of the total quantity placed by that client.
* Value of cancelled quantity for a client exceeding 50% of the total value of quantity placed by that client.
* Significant price modifications from previously placed orders.
* Stock Exchanges can add additional parameters for generating alerts.
* Stock exchanges must report alerts to SEBI by the End of Day (EOD) and seek explanations from clients regarding cancellations or modifications.
* **Transparency Enhancement:**
* Details of the number and quantity of cancelled orders will be displayed on the stock exchange website and trading member terminals in real-time.
* **Eligible Scrips:**
* IPO scrips on the first day of trading.
* Relisted scrips.
* **Specific Rules for Eligible Scrips:**
* No price bands in the pre-open session.
* Market orders are not allowed in the pre-open session.
* Matched orders will follow the provisions mentioned in paragraph 17.1.9.
* Unmatched orders for IPO scrips will be moved to the normal trading session at their limit price.
* For relisted scrips, if an equilibrium price is discovered, unmatched orders will be moved to the normal trading session at their limit price; otherwise, all orders will be cancelled, and the scrip will continue to trade in a call auction until a price is determined.
* **Risk Management:**
* For IPO scrips with an issue size greater than INR 250 crores, risk management provisions mentioned at 17.1.13 and 17.1.14 shall be applied for preopen session.
* For IPO scrips with issue size up to INR 250 crores and relisted scrips, margins should be checked and blocked for 100% of the order value at the order level.
* **Uniformity:**
* The commencement date for the pre-open session will be uniform across all stock exchanges.
**Impact Analysis:**
* **Stock Exchanges:**
* *Impact:* Required to modify systems, implement surveillance mechanisms, generate and report alerts to SEBI, amend byelaws, and disseminate information to market participants.
* *Action Required:* Take necessary steps to implement the new guidelines, amend byelaws, and inform market participants.
* **Investors:**
* *Impact:* Will have access to real-time information on cancelled orders and benefit from enhanced surveillance to prevent manipulation.
* *Action Required:* To take informed decisions on the pricing of such stocks.
* **Trading Members:**
* *Impact:* Must be aware of the new rules and communicate them to their clients.
* *Action Required:* To make note of the changes and disseminate information to the clients.
* **SEBI:**
* *Impact:* Receives reports from stock exchanges and monitors compliance to protect investors and regulate the market.
* *Action Required:* Monitor implementation and compliance by stock exchanges.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body for securities markets in India, responsible for protecting investors and promoting market development.
Initial Public Offer (IPO): The first time a private company offers shares to the public.
Stock Exchanges: Organizations that provide a platform for trading stocks and other securities. SEBI has directed stock exchanges to modify call auction rules.
Secondary Market Advisory Committee of SEBI: A committee advising SEBI on matters related to the secondary market.
Securities and Exchange Board of India Act 1992: The legislation establishing SEBI and defining its powers and functions.
Securities Contracts Regulation Stock Exchanges and Clearing Corporations Regulations, 2018: Regulations governing stock exchanges and clearing corporations.
Call Auction: A specific trading mechanism used in the pre-open session for IPOs and relisted scrips.
SEBI Master Circular No. SEBIHOMRD2POD 2CIRP2023171: A master circular issued by SEBI on October 16, 2023, which this circular modifies concerning call auction procedures.
CIRCULAR
SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/85 June 20, 2024
To
All Recognized Stock Exchanges
Dear Sir/Madam,
Subject: Modification in duration for Call Auction in pre-open session for Initial
Public Offer (IPO) and Relisted scrips
1. Paragraph 17.2 of Chapter 1 of SEBI Master Circular No. SEBI/HO/MRD2/POD-
2/CIR/P/2023/171 dated October 16, 2023 for ‘Stock Exchanges and Clearing
Corporations’ prescribed framework for call auction in pre-open session for Initial
Public Offer (IPO) and relisted scrips.
2. It was observed that during the call auction in pre-open session for certain IPO
and relisted scrips, orders were placed at higher price in large volumes and
significant portion of such orders were cancelled just before the closure of call
auction session. This may have created false demand and supply and possibly
manipulating the price of the scrips to the detriment of common investors.
3. In order to curb the misuse of the call auction session, based on the report of
Working Group of Stock Exchanges and recommendations of Secondary Market
Advisory Committee of SEBI, it has been decided to modify the current provisions
related to call auction session for IPO & relisted scrips and introduce additional
surveillance measures at stock exchanges.
4. Accordingly, paragraph 17.2.1 of the aforesaid Master Circular has been modified
as under:
Page 1 of 7“17.2.1 Duration of Session
17.2.1.1. The session shall be for a duration of 60 minutes i.e. from 9:00 a.m.
to 10:00 a.m., out of which 45 minutes shall be allowed for order entry,
order modification and order cancellation, 10 minutes for order
matching and trade confirmation and the remaining 5 minutes shall
be the buffer period to facilitate the transition from pre-open session
to the normal trading session.
17.2.1.2.The session shall close randomly during last ten minutes of order
entry i.e. anytime between 35th and 45th minute of the order entry
window. Such random closure shall be system driven.”
5. In order to enhance the surveillance mechanism at stock exchanges for pre-open
call auction session for IPO and relisted scrips, it has been decided that stock
exchanges shall have the following additional surveillance mechanisms:
5.1. Stock exchanges shall have adequate surveillance mechanisms for pre-open
call auction session for IPO or relisted scrips to avoid any kind of manipulation.
5.2. In addition to the surveillance mechanisms, the stock exchanges shall generate
alerts based on the following indicative parameters:
i. cancelled quantity for a particular client exceeds 5% of total cancelled
quantity across the market during the pre-open session.
ii. value of cancelled quantity for a particular client exceeds 5% of total value
of cancelled quantity across the market during the pre-open session.
iii. cancelled quantity for a particular client exceeds 50% of total quantity placed
by that client during the pre-open session.
iv. value of cancelled quantity for a particular client exceeds 50% of total value
of quantity placed by that client during the pre-open session.
v. Modification of prices significantly away from previously placed order(s).
vi. Stock exchanges can have additional parameters for generating alerts.
Page 2 of 75.3. For the alerts generated based on the above parameters, stock exchanges shall
provide a report to SEBI by End of Day (EOD). Further, based on analysis, stock
exchanges shall seek explanation from the clients for the cancellations or
modifications done by them during the pre-open session.
6. Further, to enhance transparency in pre-open call auction session, details of
number and quantity of cancelled orders shall also be displayed on the website of
stock exchange and terminals of Trading Members on a real time basis for
investors to take informed decision on the pricing of such stocks.
7. The modified guidelines on pre-open call auction session for IPO and relisted
scrips as mentioned at paragraph 17.2 of Master Circular dated October 16, 2023
for “Stock Exchanges and Clearing Corporations” are placed at Annexure-A.
8. Applicability: The provisions of this circular shall be applicable from 90th day of
issuance of the circular.
9. Stock Exchanges are advised to:
9.1. take necessary steps and put in place necessary systems for implementation of
the above.
9.2. make necessary amendments to the relevant bye-laws, rules and regulations,
wherever required, for implementation of the above; and
9.3. bring the provisions of this circular to the notice of the market participants
(including investors) and disseminate the same on their website.
10. This circular is issued in exercise of the powers conferred under section 11(1) of
the Securities and Exchange Board of India Act 1992 read with regulation 51 of
the Securities Contracts (Regulation) (Stock Exchanges and Clearing
Corporations) Regulations, 2018 to protect the interests of investors in securities
and to promote the development of, and to regulate the securities market.
Page 3 of 711. This circular is available on SEBI website at www.sebi.gov.in at “Legal Framework
- Circulars.”
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Market Regulation Department
Phone No.: 022 2644 9586
E-mail: hrsahoo@sebi.gov.in
Page 4 of 7Annexure-A
“17.2 Call Auction in Pre-open session for Initial Public Offer (IPO) and Relisted
scrips
17.2.1 Duration of Session
17.2.1.1 The session shall be for a duration of 60 minutes i.e. from 9:00 a.m. to 10:00
a.m., out of which 45 minutes shall be allowed for order entry, order
modification and order cancellation, 10 minutes for order matching and trade
confirmation and the remaining 5 minutes shall be the buffer period to
facilitate the transition from pre-open session to the normal trading session.
17.2.1.2 The session shall close randomly during last ten minute of order entry i.e.
anytime between 35th and 45th minute of the order entry window. Such
random closure shall be system driven.
17.2.2 Eligible Scrips
17.2.2.1 IPO scrips on the first day of trading
17.2.2.1.1 Price Bands: There shall be no price bands in the pre-open session.
17.2.2.1.2 Market Orders: Market orders shall not be accepted in pre-open session.
17.2.2.1.3 Matched Orders: For matched orders, the provisions mentioned at
paragraph 17.1.9 shall be applied.
17.2.2.1.4 Un-matched orders: All outstanding orders will be moved to the normal
trading session at their Limit price.
17.2.2.2 Re-listed Scrips
17.2.2.2.1 Price Bands: There shall be no price bands for re-listed scrips during pre-
open session.
Page 5 of 717.2.2.2.2 Market Orders: Market orders shall not be accepted in pre-open session.
17.2.2.2.3 Matched Orders: For matched orders the provisions mentioned at
paragraph 17.1.9 shall be applied.
17.2.2.2.4 Un-matched orders:
17.2.2.2.4.1 In case equilibrium price is discovered, all outstanding orders shall be
moved to the normal trading session at their limit price.
17.2.2.2.4.1 In case equilibrium price is not discovered, all orders shall be cancelled
and the scrip shall continue to trade in call auction mechanism until
price is determined.
17.2.3 Risk Management: For IPO scrips with an issue size greater than INR 250
crores the risk management provisions mentioned at 17.1.13 and 17.1.14 shall
be applied for pre-open session.
For IPO scrips with issue size up to INR 250 crores and Re-listed scrips it is
advised that margins shall be checked and blocked for 100% of the order value
at the order level itself before considering the order eligible for inclusion in pre-
open session.
17.2.4 The date of commencement of pre-open session for all eligible scrips shall be
uniform across stock exchanges.
17.2.5 Surveillance Mechanisms:
17.2.5.1 Stock exchanges shall have adequate surveillance mechanisms for pre-
open call auction session for IPO or relisted scrips to avoid any kind of
manipulation.
17.2.5.2 In addition to the surveillance mechanisms, the stock exchanges shall
generate alerts based on the following indicative parameters:
a. cancelled quantity for a particular client exceeds 5% of total cancelled
quantity across the market during the pre-open session.
Page 6 of 7b. value of cancelled quantity for a particular client exceeds 5% of total
value of cancelled quantity across the market during the pre-open
session.
c. cancelled quantity for a particular client exceeds 50% of total quantity
placed by that client during the pre-open session.
d. value of cancelled quantity for a particular client exceeds 50% of total
value of quantity placed by that client during the pre-open session.
e. Modification of prices significantly away from previously placed
order(s).
f. Stock exchanges can have additional parameters for generating
alerts.
17.2.5.3 For the alerts generated based on the above parameters, stock
exchanges shall provide a report to SEBI by End of Day (EOD). Further,
based on analysis, stock exchanges shall seek explanation from the
clients for the cancellations or modifications done by them during the pre-
open session.
17.2.6 To enhance transparency in pre-open call auction session, details of number and
quantity of cancelled orders shall also be displayed on the website of stock
exchange and terminals of Trading Members on a real time basis for investors to
take informed decision on the pricing of such stocks.”
Page 7 of 7