SEBI Announces Price Discovery For Illiquid Listed Holding Companies
The first special call auction will be conducted in October by stock exchanges based on the latest available audited financial statements of such companies.
Capital market regulator SEBI introduced a special call auction mechanism with 'no price bands' for price discovery of scrips of listed investment companies and listed investment holding companies.
The first special call auction will be conducted in October by stock exchanges based on the latest available audited financial statements of such companies, SEBI said in a circular on Thursday. The next special call auctions will be done as and when the companies publish the annual audited financial statements.
The move by the regulator came after it observed that scrips of the listed investment companies and listed investment holding companies were being traded infrequently and at a lower price than the book values that were disclosed by these companies in its recent audited financial statement.
SEBI also observed that the companies have no day-to-day operations and have investments in multiple asset classes. The asset classes also include scrips of other listed companies.
According to SEBI, this is affecting liquidity, fair price discovery, and the overall interest of investors in scrips of such companies.
Company Identification
The listed investment companies and listed investment holding companies will be identified based on uniform industry classifications provided by the stock exchanges. The share of such companies needs to be listed for at least one year and the scrips should not be suspended for trading. In addition, the circular said that the total assets of the company invested in scrips of other companies should be less than 50%, among others.
Initiation Process By Stock Exchanges
The stock exchanges will initiate the process for special call-auction with no price bands for eligible listed investment companies and listed investment holding companies with a 14-day advance notice to the market. In case the company is listed on multiple stock exchanges then the exchanges should coordinate a common date for the special call auction session. This mechanism can be provided only once a year.
The notice with details including information regarding the last traded price, the latest available overall book value of the company, book value based on the investments in scrips of other listed companies, the proportion of assets invested in other listed companies, price of latest buy-back or delisting, if any, offered by the company needs to be disclosed by the exchanges on their website.
When Is A Special Call Auction Considered Successful?
According to the circular, the special call auction would be considered as successful if the price discovery is based on orders from at least five PAN-based unique buyers and sellers.
If a company is listed on multiple stock exchanges and a call auction is successful on one of them, the price established at that exchange will serve as the reference for trading on the other exchanges.
If a call auction does not succeed on the first day, it will carry on the following day and continue until the price is determined, SEBI added.
To prevent order spoofing and manipulative activities during the special auction session, stock exchanges are expected to implement robust risk management and surveillance mechanisms before the session's commencement.
