The Securities and Exchange Board of India (Sebi) is planning to tweak the existing framework for generating more liquidity in the large universe of illiquid scrips. With its remedy of multiple call auction sessions not giving the desired effect, the regulator is now evaluating if a single call auction window could be a better alternative.
There are more than 2,000 companies that have been categorised as ?illiquid? by the stock exchanges based on their trading volume and the daily number of trades. As part of its attempts to infuse liquidity into such stocks, Sebi announced the introduction of call auction mechanism from April 1 onwards.According to persons familiar with the matter, market players, including stock exchanges and intermediaries, have suggested to the regulator that the series of call auction sessions during the day is making it difficult for participants to monitor the demand-supply equ tion and a single one-hour window could be a better bet.
?Not many market players have the time and resources to focus on so many (call auction) sessions,? said a market participant familiar with the developments.
?The general feedback is that one or, maybe, a maximum of two sessions of 60 minutes or 45 minutes each would make the ecosystem more conducive for all participants,? he added. Under the call auction mechanism, buy/sell orders are not executed immediately. Orders are collected over a fixed period and, then, processed in an auction. The price at which the highest number of orders is placed is chosen.
According to reports, the overall volume of illiquid stocks has fallen 25-30% in the current month with more than half of the stocks not even witnessing any trading activity. Sources, however, add that any kind of tweaking in the framework would take some time since the current norms were announced only two months ago in February and implemented from April 1 onwards. The suggestions would be taken up by the secondary market advisory committee before the regulator decides on the changes.