Published On: Fri, Sep 17th, 2010

BSE to Introduce Pre-open Call Auction in Mid-October

The Bombay Stock Exchange (BSE) is likely to implement call auction in the pre-open session from mid-October to reduce price volatility and better price discovery, a senior exchange official said. “The Exchange is talking to the market regulator, Securities and Exchange Board of India (SEBI) for introduction of call auction in pre-open session, and it is expected to go live in mid-October,” BSE’s Head-Product Strategy, Sayee Srinivasan, told media.

Initially the call auction session will be applicable for Sensex 30 and Nifty 50 scrips, Srinivasan said, adding that more scrip will be gradually added in the list. The BSE had stopped call auction in the mid-90. Last month, SEBI had said a pre-open session with a call auction facility for the Sensex and Nifty stocks would be introduced on a pilot basis by both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

The pre-open call auction session will be for 15 minutes between 9 am and 9.15 am. While the first eight minutes will be reserved for order entry, modification and cancellation, the next four minutes will be kept for order matching and trade confirmation. The remaining three minutes will be the buffer period to facilitate the transition from pre-open session to the normal market.

The introduction of pre-open session with a call auction mechanism is expected to reduce the quantum of volatility, typically visible in the first few minutes of a trading session, Srinivasan said.

The advantages of call auctions are it reduces price volatility due to multiple matching of orders at a single price, provides greater liquidity due to deeper demand supply schedule, better price discovery, reduced market impact and simultaneity of trades eliminates possibility of front running customer orders. It is also expected to help retail as well as institutional investors.

Sebi, incidentally, is trying the framework only on the most liquid stocks, where participation is highest and it is difficult for a few players to manipulate. Call auctions are used by all major stock exchanges of the world to fix opening or closing prices–trading starts or ends with a call auction.

SEBI had earlier asked the stock exchanges to issue the necessary guidelines and put in place the necessary systems to ensure the operationalisation of call auction.

Source: Economic Times

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