BSE mulls pre-opening trade in IPO stocks on listing day

The Bombay Stock Exchange (BSE) plans to introduce pre-opening trade in IPO stocks on the day of listing, a practice that is currently only permitted for Sensex stocks and 20 other large cap counters.

"We are keen on allowing the IPO stocks to have a pre-open session on their debut day. We are talking to the market watchdog Sebi on this," BSE Deputy Chief Executive Ashishkumar Chauhan told PTI.

As to how this would assist the debutante company, Chauhan said it will help avoid wild price fluctuations on the listing day, as it does with other stocks.

Explaining the mechanism, he said, "Instead of the 50 stocks that are allowed to have pre-open now, when there is a listing, the debutante scrip will also be part of the pre-open trade on that day."

On October 18 last year, both the BSE and National Stock Exchange (NSE) had started a 15-minute special pre-opening session to help reduce the extreme price volatility typically visible in the first few minutes of trade, as well as ensure better integration of domestic markets with international markets.

Normally, the market sees wild price fluctuation whenever there is any major event or announcement by a company like an M&A, open offer, delisting, debt-restructuring, credit-rating downgrade or upgrade and rumours regarding any such event.

Market watchdog Securities and Exchange Board had allowed the introduction of a pre-open session call auction on the bourses between 9 and 9.15 am last July.

In a call auction, participants indicate their willingness to buy or sell stocks by placing an order for a number of units at the prevailing price before the trading begins. This mechanism is known as the pre-open session call auction and is prevalent in all the leading global bourses.

According to market experts, pre-opening trade will help both retail as well as institutional investors by reducing price volatility due to multiple matching of orders at a single price, better price discovery and also dilute the impact of any major swings on the market.

Another advantage is a fairer market, especially for small and non-professional investors, because all trades get executed at the same price.

According to BSE officials, a uniform price band of 20% will be applicable to all eligible securities during the pre-open session.

In the first 15 minutes, investors can place orders for eight minutes, on the basis of which the exchanges will determine the rates at which trading will happen.

Till now, the pre-opening trade facility was only available to Sensex and Nifty stocks, besides another 20 large cap stocks in the case of the BSE to enable better alignment with the NSE.