Trading activity in stock exchanges is set to get a major boost from 2014 as the Securities and Exchange Board of India recently tweaked the norms for periodic call auction by modifying the classification of illiquid stocks. The capital market regulator has replaced the volume criteria for illiquidity of scrips with value, beginning January.

Heavy toll Trading activity took a heavy toll at the bourses when SEBI, in April, introduced the pre-open call auction market for all listed stocks.

Earlier, this mechanism was used only to determine the opening prices of stocks forming the NSE’s Nifty and the BSE’s Sensex. Besides, stocks that enter the bourses for the first time after public issue or corporate restructuring (IPO/merger/reverse merger) on the listing day have also been pushed to the call auction route. The move was aimed at arresting volatility at the time of opening and to protect investors from huge swings. However, this move proved counter-productive, as periodic call auction alienated retail investors from trading in these stocks. There were concerns that even scrips of genuine companies witnessed a sharp fall in trading interest.

Annoyed one & all The perceptible drop in trading volumes of scrips that were shifted to the periodic call auction annoyed not only market intermediaries, but also retail investors, as not many of them understood the concept.

Currently, a whopping 2,285 scrips on the BSE and 410 on the NSE are traded under call auction, as under the volume-based criteria, scrips with an average daily volume of 10,000 during a quarter and less than 50 trades a day on an average are deemed illiquid.

Now thanks to the new move, many stocks would come out of call auction. Brokers estimate that about 1,500 stocks on the BSE and 300 on the NSE would now come out of the rigid call auction mechanism and move into the regular continuous trading regime.

Rs 2 lakh criteria According to SEBI’s new norm, stocks would now be classified as illiquid only if average daily turnover is less than Rs 2 lakh in the previous two quarters.

Another move that has been welcomed is that stock exchanges are now allowed to determine the number of call auction sessions for illiquid stocks.

Exchanges will, however, have at least two sessions in a trading day, with one uniform closing session across exchanges.

Earlier, periodic call auction sessions of one hour each were conducted throughout trading hours, with the first session starting at 9.30 a.m Though the new mechanism will kick in only after December end, already several counters from the mid- and small-cap space have witnessed a marked pick-up in trading activity post the announcement.

SEBI’s intention was genuine to perk up the trading interest in good quality stocks.

Now, retail investors should trade with full responsibility by identifying only good quality stocks in this segment instead of losing money in stocks whose fundamentals are in question.

>badrinarayanan.ks@thehindu.co.in

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