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Feb 29, 2012

Trading Control on IPO and Re-listed Scrips

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Trading Control on IPO and Re-listed Scrips
 

In an another step towards Investor Protection and to curb unusual high market volatility and price movements on the first day of trading of IPO scrip and Re-listed Scrip, SEBI has vide its two circulars dated January 20th, 2012 introduced the Call Auction session of one hour for these scrips along with further introduction of Price Bands and trading in TFT Segments.

 

The key provisions of the Circulars are as following:
 

1. Introduction of Call Auction Mechanism to IPO and Re-listed Scrips:
   

a.

The session will be of 60 minutes duration from 9.00 am to 10.00 am bifurcated as following:
   
 

First 45 Minutes
  • Order Entry
  • Order Modification
  • Order Cancellation

Next 10 Minutes
  • Order Matching
  • Trade Confirmation

Remaining 5 Minutes
  • Buffer period to facilitate transition from pre open session to normal trading session

Session to close randomly during 44th and 45th minute which will be system driven.
 

b.

Trading during the pre-open session shall be as following:
   
 

 

In IPO Scrips

In Re-listed Scrips

Price Band

No Band

No Band

Market Orders

Not accepted

Not accepted

Un Matched Orders

All outstanding to be moved to normal trading  at limit price

All outstanding orders to be moved to normal trading-

  • If Equilibrium Price (EP)* discovered @ limit price.
  • If EP not discovered, all orders to be cancelled and scrip to continue to trade in Call Auction until price determined.

Risk Management

Issue size upto Rs. 250 Cr. – Margins to be checked and blocked for 100% of order value at order level itself.
issue size more than  Rs. 250 Cr. –
as applicable to normal cash market

Margins to be checked and blocked for 100% of order value at order level itself.
 

* Equilibrium price is the price at which maximum volume is executable
 

2. Normal trading Session for both IPO and Re-listed scrips on first day to commence only after conclusion of call auction session on BSE and NSE.
 

3. Introduction of Price Bands in normal trading session:

SEBI has further introduced Price Bands in normal trading session on IPO and Re-list scrips for first day of trading as following:

 

IPO

 Re-listed scrip
issue size upto Rs. 250 Cr. issue size more than  Rs. 250 Cr.

Equilibrium price (EP) discovered

5% of EP

20% of EP

5% of EP

EP not discovered

5% of Issue Price

20% of Issue Price

scrip to continue to trade until discovery
 

4. Trading in TFT Segment
 

In addition to above, making provisions more stringent, additional requirement of trading in TFT segment in also provided for as following:
 

In case of IPO issue size upto Rs. 250 Cr.

Trading in TFT segment for first 10 days.

In case of IPO issue size above Rs. 250 Cr

N.A.

In case of Re-listed

Trading in TFT segment for first 10 days with applicable price band.
 

CP Comments:

The step of SEBI towards introducing restriction on trading in cases of IPOs and Re-listing is surely to boost public confidence and enthrall investors. This is a preventative attempt coming next to recent SEBI orders under section 11B against promoters and merchant bankers of majority Companies which have come out with IPO during the past year involving manipulation with volumes and trade price on the first day of IPOs.

Though certainly a pro-investor action, but how the intermediaries and Corporate Houses would react to these new provisions remains a question? The provisions may be dampening to small and medium size IPOs and there may be several practical difficulties in raising funds for such companies.
 


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