Sebi eases trading curbs on illiquid stocks

Tweaks follow market feedback on operational difficulties associated with periodic call auction

The Securities and Exchange Board of India (Sebi) has loosened the trading criteria on illiquid scrips, based on profitability and market capitalisation.

Call auctions will not apply to shares ‘where a company is profitable in at least two of the past three years, and not more than 20 per cent of promoters’ shareholding is pledged in the latest quarter and the book value is three times or more than the face value’.

The new rules also exclude companies with a market capitalisation of at least Rs 10 crore or which have paid a dividend in at least two of the past three years.

The regulator had earlier decided to apply the periodic call auction rules to all stocks with average trading volume of less than 10,000 and quarterly average daily number of trades of less than 50. A stock can now exit the periodic call auction after a quarter, as opposed to two quarters earlier, so long as it is not classified illiquid.

The number of trading sessions for such stocks has been left to the exchanges, so long as they have at least two sessions in a trading day, with one uniform closing session across exchanges.

Sebi has also said orders need not be re-entered at the end of every session and unmatched orders can be carried forward to the next one.  

The regulator had earlier extended the periodic call auction to all stocks. This had reduced volumes further, due to operational difficulties on repeated order entry, according to market intermediaries. “Representations have been received from market participants regarding (this) circular. The issues raised by market participants were examined and deliberated in the Secondary Market Advisory Committee (SMAC) ,” said the Sebi circular.

“Based on recommendations of SMAC and feedback from market participants and stock exchanges, it has been decided to rationalise the periodic call auction mechanism,” it added.