SEBI Proposes Special Auction For Price Discovery Of Listed Investment Holding Firms

The Securities and Exchange Board of India has proposed the framework for price discovery of shares of listed investment companies and investment holding companies whose market price is at a significant discount to book value.

The market regulator has proposed that a special call-auction mechanism without a price band may be enabled for listed investment and investment holding companies whose shares are trading beyond a certain discount to their book value.

The stock exchanges shall coordinate among themselves and provide the special call-auction mechanism for such companies, it said in a consultation paper released on Friday, while also providing the criteria for identification of investment firms eligible for the special auction.

"Once the companies are identified, the stock exchanges shall initiate the process for special call-auction without price band for shares of such company(ies) with a 7-day prior notice. The special call-auction mechanism may be provided for the investment firms only once in a year," according to the paper.

The framework comes with a view to protecting the interests of investors in investment firms or investment holding companies whose market price is at a substantial discount to its book value.

The regulator mentioned cases of shares of a few listed investment firms currently being traded infrequently, but at a price that is significantly lower than the book value disclosed by the listed entities in their last audited financial statements.

In certain cases, it is observed that where the investments are mainly in shares of other listed companies, the market value is at a significant variance from its book value. The valuation could be fairly high on account of growth in their investment in shares of other listed companies.

"It is felt necessary to review the existing framework for price discovery and put in place necessary mechanisms to provide an opportunity for fair and transparent price discovery," the regulator said in the paper, as it seeks public comments on its proposal by May 10.