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Sebi introduces a call-auction system to help investment businesses find reasonable prices

Sebi introduces a call-auction system to help investment businesses find reasonable prices


The regulator discovered that the scrips were trading far below their book value, therefore they implemented this mechanism.


The framework was announced by the market regulator in a June 20 circular.

The market regulator has implemented a call-auction system for investment companies (ICs) and investment holding companies (IHCs) in order to guarantee fair-price discovery for these entities.


This was done because it was discovered that the peculiarities in the revenue models of ICs and IHCs were causing their scrips to trade much "significantly" below their book value.


The Securities and Exchange Board of India (Sebi) unveiled a framework for holding these call auctions in a circular that was published on June 20.


"It is observed that scrips of a few listed ICs as well as IHCs are being traded infrequently and at a price which is substantially lower than the book value disclosed by these companies according to their latest audited financial statements," the regulator said in the circular outlining the rationale for holding these call auctions. Additionally, these businesses often don't run on a daily basis and invest in a variety of asset classes, such as the scrips of other publicly traded firms.


It said, "The variance in the market price and book value of such ICs and IHCs is harming liquidity, fair price discovery as well as the overall interest of investors in scrips of such companies."


The new mechanism will allow ICs and IHCs to participate in the call auction if they have been trading for a minimum of a year, if at least 50% of their assets are in scrips of other listed companies, and if the volume weighted average price (VWAP) of their scrip over the last six months is less than 50% of their book value per share.


Should the scrips of these ICs or IHCs remain untraded for the preceding six months, the scrip's VWAP for those six months will be zero.


The circular also said that the scrip would not be eligible for call auction at any stock exchange if the eligibility requirements are not satisfied at any stock exchange.

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