Periodic call option bse
The Securities and Exchange Board of India SEBI has introduced a trading system of periodic call auction starting from April 8, Under the periodic call auction, SEBI has a certain criteria for classifying the stocks as illiquid. There is a volume criteria and there is a number of trades criteria. In this trading system, there are six sessions of one hour each during the trading hours. The first 45 minutes of the one hour session is dedicated toward order entry, order modification and cancellation.
The next seven to eight minutes are for order matching and the balance seven minutes is the cool off period for going to the next session. Sebi mulls annulment policy for freak trades. Now, the objective of the new trading system is 1 to curb manipulation in the smallcaps; 2 to reduce price volatility and impact cost for smallcaps and 3 to enhance liquidity in these stocks.
The impact of this system has been that this system makes it very difficult for investors and brokers to trade in these stocks. Since unexecuted orders after one hour get cancelled every hour, investors have to place the bid every hour and monitor it especially during the end of the order placement sessions to have the best chance of the trade getting executed.
One of the objectives of this system is to curb manipulation in these stocks.
In reality, out of the 2, stocks, which have been put in this place, there maybe a few dozen stocks, which are actually being manipulated. Now, the manipulators will ensure that these stocks may come out of this category. It is very easy to do volumes in these kinds of stocks. So, what is going to happen is: So the non-manipulated stocks, which is the vast majority of these stocks, which stay in the list for a long time barring a change in criteria. This in effect punishes the vast majority of investors along with the small minority of manipulators.
If you see the volumes of the stocks which they have traded in the last one month and compared them with the volumes which were traded one month before they were put in this category, you will find a sharp drop in volumes of anywhere between percent.
You will find a large number of stocks which go without registering a volume of even one share. So I think as far as the objective of enhancing liquidity is concerned, it is proving to be counter productive.
Another thing is that lot of companies, which are good companies, which have got a 20 year dividend track record, have been put in this category. So, putting all these stocks in one category may not be fair to the investors.
We have seen wild movements in stocks which clock high volumes also, the recent case being NHPC down from Rs 32 to Rs 18 in a matter of two days, I am sure this is not entirely because of the fundamental factors of the stock. I think SEBI's intensions maybe good but the idea they have chosen I would say is not a practical idea and it may do more harm than good.
I think this is the time when they need to generate more confidence to the retail investors to invest in the Indian market.
I think the new system is scaring away the investors from investing in smallcaps and discouraging long term investing and encouraging punting or trading and speculation in the Indian market. I think the objective which SEBI is working towards can be fulfilled through surveillance mechanisms only. Trading restrictions may not be the answer to this. So I believe that this is a system which requires a serious rethinking from SEBI. Farm loan waiver a concern if follow-up action missing; focus on high quality cos: Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express writtern permission of moneycontrol.
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Why call auctions are required to safeguard investor interests - The Economic Times
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