Introduction of call auction in Pre-open session - SEBI - CIR/MRD/DP/21/2010

CIRCULAR CIR/MRD/DP/21/2010 July 15, 2010 The Managing Director and CEO Bombay Stock Exchange Limited Phiroze Jeejeebhoy Towers Dalal Street Mumbai - 400001 The Managing Director National Stock Exchange of India Ltd. Exchange Plaza, Bandra Kurla Complex Bandra (E) Mumbai - 400 051 Dear Sir, Sub: Introduction of call auction in Pre-open session 1. The issue regarding call auction and its use in various session, including pre-open session was deliberated in Secondary Market Advisory Committee (SMAC). Based on the recommendation of the committee and proposal received from the stock exchanges, it has been decided to introduce call auction mechanism in pre-open session. 2. To begin with, pre-open session shall be introduced on a pilot basis by BSE and NSE for the scrips forming part of Sensex and Nifty. The list of scrips is placed at annexure A . In case of any change in the composition of Sensex and Nifty, pre-open session shall be introduced for such incoming scrips. Pre-open session shall also continue for the scips moving out of Sensex and Nifty, though they will not be reckoned for the computation of the index. 3. The pre-open session shall be for a duration of 15 minutes i.e. from 9:00 a.m. to 9:15 a.m., out of which 8 minutes shall be allowed for order entry, order modification and order cancellation, 4 minutes for order matching and trade confirmation and the remaining 3 minutes shall be the buffer period to facilitate the transition from pre-open session to the normal market. 4. The session shall close randomly during last one minute of order entry i.e. anytime between 7th and 8th minute of the order entry. Such random closure shall be system driven. 5. Limit orders and market orders shall be entered during the pre-open session and both shall be reckoned for computation of equilibrium price. No iceberg order will be allowed i.e orders shall be disclosed in full quantity. 6. Price band of 20% shall be applicable on the securities during pre-open session. 7. In case the index breaches the prescribed threshold limit upon the closure of pre-open session, the procedure as prescribed in SEBI Circular Ref. No. SMDRPD/Policy/Cir-37 /2001 dated June 28, 2001 shall be applicable from the time continuous normal market opens. 8. The equilibrium price shall be the price at which the maximum volume is executable. In case more than one price meets the said criteria, the equilibrium price shall be the price at which there is minimum order imbalance quantity (unmatched order quantity). The absolute value of the minimum order imbalance quantity shall be taken into consideration. Further, in case more than one price has same minimum order imbalance quantity, the equilibrium price shall be the price closest to the previous day s closing price. In case the previous day s closing price is the mid-value of a pair of prices which are closest to it, then the previous day s closing price itself shall be taken as the equilibrium price. In case of corporate action, previous day s closing price shall be the adjustable closing price or the base price. Explanation : A scenario may arise, wherein; more than one price may have same minimum imbalance quantity. Example on the same is given hereunder: Price Buy (Qty) Cum. Buy Qty Sell (Qty) Cum. Sell Qty Unmatched Quantity Vol. tradable 106 0 3000 8000 ‐8000 0 103 2000 2000 3000 5000 ‐3000 2000 96 3000 5000 1000 2000 3000 2000 94 1500 6500 1000 1000 5500 1000 92 2000 8500 0 8500 0 90 1000 9500 0 9500 0 In the said example 103 and 96 are the prices wherein, the volume tradable and unmatched quantity is the same. To derive the equilibrium price, the said prices i.e. 103 and 96 which is closest to the previous day s closing price shall be considered. In case the previous day s closing price is 95, then, 96 may be considered as the equilibrium price. In case the previous day s closing price is 105, then, 103 may be considered as the equilibrium price. In case the previous day s closing price is 99.5 which is the mid-value of 103 and 96, then the equilibrium price shall be the previous day s closing price i.e. 99.5. 9. Pursuant to the discovery of price in the pre-open session, at the time of order execution, limit orders shall be given priority over market orders. The sequence for executing orders is given below: a) Eligible Limit orders shall be matched with eligible limit orders. b) Residual eligible limit orders shall be matched with market orders. c) Market orders to be matched with market orders. 10. In case of pending unmatched orders in pre-open session, they shall be shifted to the order book of the normal market following time priority. Unmatched market orders will shift to the normal market order book as limit orders at a price as discovered in the pre-open session. 11. If the price is not discovered in pre-open session then the orders entered in the pre-open session will be shifted to the order book of the normal market following time priority. The price of the first trade in the normal market shall be the opening price. 12. The current risk management system for cash market shall be applicable to pre-open session. 13. The following information shall be disseminated during pre-open session: a) Indicative equilibrium price of the scrip b) Indicative cumulative buy and sell quantity of the scrip c) Indicative Index 14. This framework for call auction shall be reviewed after 3 months from the commencement of the pre-open session. 15. The Stock Exchanges shall issue the necessary guidelines in this regard and shall put in place the necessary systems to ensure the operationalization of the above. 16. The Stock Exchanges are advised to: i) put in place the adequate systems and issue the necessary guidelines for implementing the above decision. ii) test the software for operational robustness and system integrity, well before the commencement date to avoid any problems in the live environment. iii) design the software with sufficient flexibility to allow for enhancements viz., extending the scope of call auction to other type of sessions, scrips, as a result of policy review. iv) make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately. v) bring the provisions of this circular to the notice of the member brokers of the Exchange and also to disseminate the same on the website. vi) communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report. vii) Stock exchange shall seek SEBI s approval after the implementation of the above steps and prior to the commencement of the pre-open session. 17. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. Yours faithfully, Harini Balaji Deputy General Manager 022-26449372 [email protected] Encl: Annexure- I Scrips eligible for pre-open session Annexure I Sr.No. Scrips 1 ABB LTD. 2 ACC LIMITED 3 AMBUJA CEMENTS LTD 4 AXIS BANK LIMITED 5 BHARTI AIRTEL LIMITED 6 BHEL 7 BHARAT PETROLEUM CORP LTD 8 CAIRN INDIA LIMITED 9 CIPLA LTD 10 DLF LIMITED 11 GAIL (INDIA) LTD 12 HCL TECHNOLOGIES LTD 13 HDFC LTD 14 HDFC BANK LTD 15 HERO HONDA MOTORS LTD 16 HINDALCO INDUSTRIES LTD 17 HINDUSTAN UNILEVER LTD. 18 ICICI BANK LTD. 19 IDEA CELLULAR LIMITED 20 INFRA. DEV. FIN. CO. LTD 21 INFOSYS TECHNOLOGIES LTD 22 ITC LTD 23 JINDAL STEEL POWER LTD 24 JAIPRAKASH ASSOCIATES LTD 25 KOTAK MAHINDRA BANK LTD 26 LARSEN TOUBRO LTD. 27 MAHINDRA MAHINDRA LTD 28 MARUTI SUZUKI INDIA LTD. 29 NTPC LTD 30 OIL AND NATURAL GAS CORP. 31 PUNJAB NATIONAL BANK 32 POWER GRID CORP. LTD. 33 RANBAXY LABS LTD 34 RELIANCE COMMUNICATIONS LTD. 35 RELIANCE CAPITAL LTD 36 RELIANCE INDUSTRIES LTD 37 RELIANCE INFRASTRUCTURE LTD 38 RELIANCE POWER LTD. 39 STEEL AUTHORITY OF INDIA 40 STATE BANK OF INDIA Sr.No. Scrips 41 SIEMENS LTD 42 STERLITE INDS (IND) LTD 43 SUN PHARMACEUTICALS IND. 44 SUZLON ENERGY LIMITED 45 TATA MOTORS LIMITED 46 TATA POWER CO LTD 47 TATA STEEL LIMITED 48 TATA CONSULTANCY SERV LTD. 49 UNITECH LTD 50 WIPRO LTD