Generally, in a call auction the buyers set a maximum price at which the shares can be bought while the sellers keep a minimum price for selling the scrips. Generally, this facility -- conducted before start of trading session helps in reducing price volatility.
Securities and Exchange Board of India (Sebi) has also introduced periodic call auction sessions for illiquid shares in the equity market.
The call auction facility for all scrips, including illiquid ones, would be effective from April 1 this year, Sebi said in a circular on Thursday.
Currently, the pre-open call auction sessions are in place on pilot basis for shares on benchmark Sensex and Nifty indices. The 30-share Sensex is part of the BSE while the 50-share Nifty is the key index of National Stock Exchange.
Besides, it is also available for Initial Public Offering (IPO) as well as re-listed shares.
According to the circular, Sebi has decided to "extend the pre-open session to all other scrips in the equity market" as well as "introduce trading through periodic call auction for illiquid scrips in equity market".
The decision has been taken following deliberations by Secondary Market Advisory Committee (SMAC).
The pre-open call auction session would be open to scrips in all exchanges.
"... pre-open call auction session shall be applicable to all exchanges with active trading and for all scrips that are not classified as illiquid," Sebi said.
The price bands for such sessions would be applicable in the normal market, the guidelines said.
"All orders shall be checked for margin sufficiency at order level for inclusion in pre-open session," it added.
As per the norms for periodic call auctions for illiquid scrips, a scrip would be illiquid if its average daily trading volume in a quarter is less than 10,000, the average daily number of trades is less than 50 in a quarter and if it is classified as illiquid at all exchanges where it is traded.
The illiquid scrips are required to be identified by the stock exchanges at the beginning of every quarter.
These shares can exit from the call auction mechanism to the normal trading session provided they have remained in session for at least two quarters and are not illiquid.
Further, a notice of two trading days would have to be submitted with the market for entry and exit of scrips.
According to the norms, periodic call auction have to be conducted for one hour each throughout the trading hours with the first session starting at 9:30 am.
regulator has fixed the the maximum price band of 20 per cent on the scrips.
However, exchanges may reduce the price bands uniformly based on surveillance related concerns, Sebi added.
The regulator said penalties could be imposed on trades where "maximum of buy price entered by a client is equal to or higher than the minimum sell price entered by that client and if the same results into trades".
"The penalty shall be calculated and charged by the exchange and collected from trading members on a daily basis," Sebi said.
As per the provisions, trading members may recover the penalty from clients.
"The penalty so collected shall be deposited to Investor Protection Fund," it said.