Introduction of a special call auction mechanism for price discovery of scrips of listed Investment Companies (ICs) and listed Investment Holding Companies (IHCs)
Summary
SEBI introduces a special call auction mechanism with no price bands to improve price discovery for listed Investment Companies (ICs) and Investment Holding Companies (IHCs). Eligibility is determined by specific criteria including listing duration, asset composition, and significant undervaluation relative to book value. Stock exchanges are mandated to implement this framework once annually, starting in October 2024, while ensuring adequate surveillance against manipulative activities.
Text
Paragraph 17 of Chapter 1 of SEBI Master Circular No. SEBI/HO/MRD2/POD-2/CIR/P/2023/171 dated October 16, 2023 prescribed the framework for call auction session applicable for pre-open sessions, IPOs, relisted scrips, and illiquid Scrips.
It is observed that scrips of a few listed ICs and IHCs are being traded infrequently and at a price which is significantly lower than the book value disclosed by these companies in their latest audited financial statements.
The variance in the market price and book value of such ICs and IHCs is adversely affecting liquidity, fair price discovery and the overall interest of investors in scrips of such companies.
In order to address the above concern, based on the deliberations with various stakeholders including stock exchanges, public comments and recommendations of Secondary Market Advisory Committee of SEBI, it has been decided to put in place a framework for “special call auction with no price bands” for effective price discovery of scrips of such ICs and IHCs.
The ICs or IHCs shall be identified based on the uniform industry classifications provided by stock exchanges.
The scrip of ICs or IHCs should have been listed and available for trading for a period of at least 1 year and the said scrips are not suspended for trading.
Total assets of the company invested in scrips of other listed companies shall be at least 50%.
The 6-month Volume Weighted Average Price (VWAP) of the scrip shall be less than 50% of the book value per share of such company based on present value of their investments in shares of other listed companies. In case the scrips of such ICs or IHCs are not traded during the previous 6-months, the 6-months VWAP of the scrip shall be taken as zero.
In case, any of the eligibility criteria is not fulfilled by the company at one of the stock exchange, the scrip would not be eligible for special call auction at any of the stock exchanges.
Stock exchanges shall initiate the process for special call-auction with no price bands for eligible ICs or IHCs with a 14 days’ advance notice to the market. In case the company is listed on multiple stock exchanges, stock exchanges shall co-ordinate amongst themselves and the date of special call auction session shall be uniform across the exchanges.
The notice shall be disclosed by the stock exchanges on their websites and appropriately bring to the knowledge of the investors. It shall include detailed information regarding last traded price, the latest available overall book value of the company, book value based on the investments in scrips of other listed companies, proportion of assets invested in other listed companies, price of latest buy-back or delisting, if any, offered by the company, etc.
The special call auction session shall be treated as successful, if price discovery is based on orders from at least 5 Permanent Account Number (PAN) based unique buyers and sellers. In case the scrip is listed on multiple stock exchanges and call auction is successful on any one stock exchange, the price discovered at that stock exchange will form the base for trading at other stock exchanges.
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Source: SecMarx — Introduction of a special call auction mechanism for price discovery of scrips of listed Investment Companies (ICs) and listed Investment Holding Companies (IHCs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.