The Securities and Exchange Board of India has unveiled a new initiative aimed at enhancing price discovery for scrips of listed Investment Companies (ICs) and Investment Holding Companies (IHCs). Through Circular SEBI/HO/MRD2/POD2/CIR/P/2024/83 dated June 19, 2024, SEBI introduces a specialized call auction mechanism designed to address liquidity challenges and ensure fair pricing of these infrequently traded stocks.
Background and Rationale:
· Many ICs and IHCs experience sporadic trading activity, often at prices significantly lower than their book values based on audited financial statements. These companies typically hold investments in various asset classes, including stakes in other listed entities.
· The discrepancy between market prices and book values undermines liquidity and hampers fair price discovery, thereby affecting investor interest in these stocks.
Key Features of the Circular:
1. Eligibility Criteria:
· The scrip of ICs or IHCs should have been listed and actively traded for a minimum period of one year without suspension.
· The total assets of the company invested in scrips of other listed companies must constitute at least 50% of its total assets.
· The 6-month Volume Weighted Average Price (VWAP) of the scrip should be less than 50% of the book value per share, calculated based on the present value of investments in shares of other listed companies. If the scrip has not traded in the previous 6 months, the VWAP will be considered as zero.
2. Special Call Auction Mechanism:
· Stock exchanges shall initiate special call auctions for eligible ICs or IHCs with no price bands, giving a 14-day notice. If a company is listed on multiple exchanges, these exchanges coordinate to set a uniform auction date.
· Exchanges shall disclose auction details on their websites, informing investors about:
- Last traded price
- Overall book value of the company
- Book value from investments in other listed companies
- Proportion of assets in other listed companies
- Price of recent buy-backs or delistings by the company
· A call auction is successful if price discovery involves orders from at least 5 PAN-based unique buyers and sellers.
· If the auction succeeds on any one exchange for a scrip listed on multiple exchanges, that exchange's price discovery sets the trading base.
· If the call auction fails on the first day, it continues daily until a price is determined.
· The special call auction mechanism is available once per year for each stock.
3. Operational Guidelines:
· Provisions for order management, risk controls, and surveillance mechanisms mirror those for relisted scrips, ensuring transparency and market integrity.
· Stock exchanges are mandated to implement robust risk management measures to prevent manipulative activities during the special auction session.
4. Implementation and Applicability:
· The first special call auction is scheduled for October 2024, based on the latest audited financial statements of eligible companies.
· Subsequent auctions will align with the release of annual financial statements.
Conclusion:
The introduction of the special call auction mechanism represents a proactive step by SEBI to enhance market efficiency and investor confidence in the trading of ICs and IHCs. By facilitating transparent price discovery, SEBI aims to mitigate risks associated with illiquid securities and promote a fair and robust securities market in India.
Comentarios