SEBI Extends Pre-Open Call Auction Session To 60 Minutes To Curb IPO Pricing Manipulation

Effective from the 90th day after the issuance of the circular dated June 20, 2024, the new framework extends the duration of the pre-open call auction session to 60 minutes, commencing at 9:00 a.m. This session is crucial as it facilitates price discovery before the commencement of regular trading hours. Within this period, specific guidelines dictate the sequence of activities: 45 minutes are allocated for order entry, modification, and cancellation; followed by 10 minutes for order matching and trade confirmation. The remaining 5 minutes serve as a buffer to transition smoothly into normal trading.

One of the changes introduced is the random closure of the order entry phase during the last ten minutes, occurring between the 35th and 45th minute. This system-driven random closure aims to prevent the strategic placement and subsequent cancellation of large orders at inflated prices, a practice observed in past sessions that could mislead investors by artificially inflating demand signals.

Sebi's decision came in response that certain IPOs and relisted stocks witnessed significant manipulative activities during the call auction sessions. Orders were frequently placed at higher prices in substantial volumes, only to be canceled just before the session concluded. Sebi highlighted that such actions potentially distorted market dynamics, creating misleading perceptions of demand and supply, thereby impacting stock prices to the detriment of retail investors.

To enhance surveillance and ensure adherence to fair practices, Sebi has mandated stock exchanges to deploy robust monitoring mechanisms. These mechanisms include generating alerts based on specific parameters such as excessive cancellations relative to market totals and significant modifications in order prices. Exchanges are required to submit daily reports to Sebi detailing such alerts, enabling further analysis and investigation where necessary.

Moreover, details of canceled orders will be displayed in real-time on stock exchange websites and trading terminals. Exchanges are directed to communicate these changes to all market participants and make necessary adjustments to their operational protocols and surveillance infrastructures.

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