Sebi Changes Pre-open Call Auction Duration For IPOs, Relisted Scrips, Effective From 18 Sept

The Securities and Exchange Board of India (Sebi) announced on Thursday revisions to the rules governing call auctions during the pre-open session for initial public offerings (IPOs) and relisted stocks, effective from 18 September 2024. These changes aim to curb price manipulation resulting from false demand and supply and to safeguard investor interests.

According to Sebi’s circular, the key changes include:

• Enhanced exchange surveillance during pre-session call auctions.
• The pre-opening session will be extended to 60 minutes, from 9 am to 10 am.
• Orders can be placed, modified, or cancelled between 9 am and 9:45 am.
• A system-driven random closure of the session will occur between 9:35 am and 9:45 am.
• Order matching and confirmation will take place in the subsequent 10 minutes (9:45 am-9:55 am).
• The last five minutes (9:55 am-10 am) will serve as a buffer period to transition from pre-opening to regular trading.

• Cancelled orders will be updated in real time on broker terminals and exchange websites.

  Stock exchanges will generate alerts based on several parameters, such as:

• If the quantity of cancelled orders for a client exceeds 5 per cent of the total cancelled quantity in the market during the pre-opening session.
• If the value of cancelled orders for a client exceeds 5 per cent of the total cancelled value in the market during the pre-opening session.
• If the quantity of cancelled orders for a client exceeds 50 per cent of the total orders placed during the pre-opening session.
• If the value of cancelled orders for a client exceeds 50 per cent of their total order value during the pre-opening session.
• Significant deviations in price modifications from previously placed orders.
• Exchanges may establish additional parameters for generating alerts.
• Exchanges will report to Sebi by the end of the day and seek explanations from clients for cancellations or modifications based on their analysis.

Why the changes?

Sebi observed that during call auctions in the pre-opening session for some IPOs and relisted stocks, orders were frequently placed at elevated prices in large volumes, with many orders being cancelled just before the session ended. This, according to Sebi, might have created misleading demand and supply, potentially manipulating stock prices to the disadvantage of ordinary investors.