Domestic stock exchanges are considering to have short trading sessions for their proposed SME (small and medium enterprises) platform. The proposal is part of the several measures that the stock exchanges are considering to inject liquidity into the new trading platform. Both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are awaiting a final nod from the capital market regulator, Securities and Exchange Board of India (Sebi), for the launch of an SME platform.
According to a source, the plan of one of the exchanges is to have two short trading sessions in a day; the first between 9.15 am and 10.15 am and the second session between 1.00 pm and 3.30 pm. The move is to aggregate volumes of all interested buyers and sellers at a particular point of time in a day and bring the much needed liquidity for the shares traded at the exchange. ?The main motive is to ensure that majority of the trade orders placed on the exchange mature into actual trade,? said the person who was part of the initial discussion with exchange. However he added that the proposed timings are tentative and clarity will emerge only after the exchange receives the final approval from the market regulator.
The meeting which comprised of top exchange officials and merchant bankers also discussed the possibility of introducing call auction mechanism for the SME platform for fair price discovery. A call auction refers to a mechanism wherein buy and sell orders on the selected stocks are collected over a fixed period of time and then processed through an auction. The price at which the highest number of orders is placed is chosen as the opening price for the stock. Already this mechanism have been implemented by both the exchanges on their main trading platform.
Moreover, the merchant bankers have also requested the capital market regulator to relax the guidelines pertaining to market making. The current Sebi norms require the merchant bankers to bear the responsibility of market making for a minimum period of three years in the SME platform. They have requested the regulator either to do away with the provision or reduce the tenure for market making to six months.
Market makers are important for maintaining liquidity of securities as they display both bid and offer prices for securities. If these prices are matched, they will immediately buy or sell from their own accounts. And with mid sized merchant bankers dominating the SME space, lack of sufficient funds at their disposal is making the current Sebi provision a roadblock to play an active role.