The call auction mechanism introduced by the stock exchanges during the markets pre-opening session has failed to attract enough participation. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) introduced call auctions on October 18 aiming to achieve better price discovery and reduce high bout of volatility during the initial few minutes of markets opening.
However, on most of the occasions, the total value of trades placed on the system to determine an ‘auction price’ (the opening price for a stock or an index) was not more than Rs 10 crore indicating fewer participation on both the exchanges. This is when compared to Rs 450 crore worth of trades for (Nifty 50 constituents) done on the NSE’s cash segment prior to the introduction of the call auction system.
A senior official at one of the exchange admitted that the volume of trade during the markets pre-opening session has not picked up significantly as was anticipated earlier despite conducting various awareness programmes for the market participants.
?Large number of investors are showing interest by logging in to the system during the pre-opening session. But those are not essentially turning into trade orders,? said the exchange official adding that they are continuing with their investor awareness programmes.
?We have seen a slow start as is the case with most of the new products launched. We expect the volume to pick up as investors gradually becomes familiar with the new system?, said an another exchange official.
But on a positive note, an FE research showed that the volatility of the Nifty index has dropped 13% in the first 15 minutes of trade. For this, the average minute-by-minute volatility of the first 15 minutes of Nifty trade before the introduction of the ‘call auction’ mechanism was compared with the 15 minutes post the auction period.
Jagannadham Thunuguntla, head of equity ? SMC Capital, said that the whole purpose of introducing this ‘call auction’ during the pre-open session is to factor in the huge gap up or gap down opening of the market. ?The relevance of this session will be known only on those special occasions when an over-night major positive or negative development has taken place,? he said.
Currently ‘call auction’ is held for only those stocks which are part of the Nifty and Sensex while trading for other stocks commences from 9.15 am onwards. Under the auction system, order entry, order modification and order cancellation are done between 9.00 am to 9.08 am for index constituents while the order matching and confirmation are done between 9.08 am to 9.12 am to determine the opening price.
The period between 9.12 am and 9.15 am is the buffer period to facilitate the transition from pre-open session to the normal market session. Globally this system is very popular in exchanges like Nasdaq, NYSE, LSE, Duetsche Bourse, OMX, Taiwan, Hong Kong and the Australian Stock Exchange among others.