Securities and Exchanges Board of India on June 20, 2024, introduced a special call auction mechanism with 'no price bands' for price discovery of securities of listed investment companies (ICs) and listed investment holding companies (IHCs).
The first such special call auction will be held in October by stock exchanges based on the latest available audited financial statements of such holding companies, and the subsequent auctions as per the release of annual audited financial statements in the following years. Such a mechanism will be provided only once a year.
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IHCs & Rationale For SEBI Intervention
Investment Holding Companies(IHCs) are companies whose main business is to hold investments across diverse asset classes in other companies. The auctions will be without prices, where price bands, typically mean a bandwidth like 5 per cent or 10 per cent, that aims to regulate volatility.
SEBI noted these IHCs are trading at a substantial discount to the value of their holdings and intervened to bring fair price discovery to bridge the gap between the market price and book value of these companies. SEBI's consultation paper suggested a special call-auction mechanism without a price band for listed IHCs trading beyond a certain discount to their book value.
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Concerning the criteria for ICs or IHCs to participate in special call-auction, SEBI said they will be identified based on uniform industry classifications provided by stock exchanges whose scrips have been listed for at least one year. The total assets of the company invested in scrips of other listed companies should be at least 50 per cent.
A circular issued by SEBI stated that stock exchanges will initiate the process for a special call-auction with a 14-day advance notice to the market. The special call-auction session will be considered successful, if price discovery is based on orders from at least five unique unique buyers and sellers based on the PAN numbers.
If a call-auction is not a success on day 1, it will continue on the next day and till such time the price is discovered. For scrips listed on multiple stock exchanges, the price discovered at one stock exchange will form the base for trading at other stock exchanges.
