CIRCULAR
CIR/MRD/DP/21/2010 July 15, 2010The Managing Director and CEO The Managing Director
Bombay Stock Exchange Limited National Stock Exchange of India Ltd.
Phiroze Jeejeebhoy Towers Exchange Plaza, Bandra Kurla Complex
Dalal Street Bandra (E)
Mumbai - 400001 Mumbai - 400 051
Dear Sir,
Sub: Introduction of call auction in Pre-open session
1. The issue regarding call auction and its use in various session, including
pre-open session was deliberated in Secondary Market Advisory Committee
(SMAC). Based on the recommendation of the committee and proposal
received from the stock exchanges, it has been decided to introduce call
auction mechanism in pre-open session.
2. To begin with, pre-open session shall be introduced on a pilot basis by BSE
and NSE for the scrips forming part of Sensex and Nifty. The list of scrips is
placed at annexure ‘A’. In case of any change in the composition of Sensex
and Nifty, pre-open session shall be introduced for such incoming scrips.
Pre-open session shall also continue for the scips moving out of Sensex
and Nifty, though they will not be reckoned for the computation of the index.
3. The pre-open session shall be for a duration of 15 minutes i.e. from 9:00
a.m. to 9:15 a.m., out of which 8 minutes shall be allowed for order entry,
order modification and order cancellation, 4 minutes for order matching and
trade confirmation and the remaining 3 minutes shall be the buffer period to
facilitate the transition from pre-open session to the normal market.
4. The session shall close randomly during last one minute of order entry i.e.
anytime between 7th and 8th minute of the order entry. Such random
closure shall be system driven.
5. Limit orders and market orders shall be entered during the pre-open session
and both shall be reckoned for computation of equilibrium price. No iceberg
order will be allowed i.e orders shall be disclosed in full quantity.
6. Price band of 20% shall be applicable on the securities during pre-open
session.
7. In case the index breaches the prescribed threshold limit upon the closure
of pre-open session, the procedure as prescribed in SEBI Circular Ref. No.
SMDRPD/Policy/Cir-37 /2001 dated June 28, 2001 shall be applicable from
the time continuous normal market opens.
8. The equilibrium price shall be the price at which the maximum volume is
executable. In case more than one price meets the said criteria, the
equilibrium price shall be the price at which there is minimum order
imbalance quantity (unmatched order quantity). The absolute value of the
minimum order imbalance quantity shall be taken into consideration.
Further, in case more than one price has same minimum order imbalance
quantity, the equilibrium price shall be the price closest to the previous day’s
closing price. In case the previous day’s closing price is the mid-value of a
pair of prices which are closest to it, then the previous day’s closing price
itself shall be taken as the equilibrium price. In case of corporate action,
previous day’s closing price shall be the adjustable closing price or the base
price.
Explanation: A scenario may arise, wherein; more than one price may
have same minimum imbalance quantity. Example on the same is given
| Price | Buy (Qty) | Cum. Buy Qty | Sell (Qty) | Cum. Sell Qty | Unmatched Quantity | Vol. tradable |
| 106 | | 0 | 3000 | 8000 | -8000 | 0 |
| 103 | 2000 | 2000 | 3000 | 5000 | -3000 | 2000 |
| 96 | 3000 | 5000 | 1000 | 2000 | 3000 | 2000 |
| 94 | 1500 | 6500 | 1000 | 1000 | 5500 | 1000 |
| 92 | 2000 | 8500 | | 0 | 8500 | 0 |
| 90 | 1000 | 9500 | | 0 | 9500 | 0 |
In the said example 103 and 96 are the prices wherein, the volume tradable
and unmatched quantity is the same. To derive the equilibrium price, the
said prices i.e. 103 and 96 which is closest to the previous day’s closing
price shall be considered. In case the previous day’s closing price is 95,
then, 96 may be considered as the equilibrium price. In case the previous
day’s closing price is 105, then, 103 may be considered as the equilibrium
price. In case the previous day’s closing price is 99.5 which is the mid-value
of 103 and 96, then the equilibrium price shall be the previous day’s closing
price i.e. 99.5.
9. Pursuant to the discovery of price in the pre-open session, at the time of
order execution, limit orders shall be given priority over market orders. The
sequence for executing orders is given below:
a) Eligible Limit orders shall be matched with eligible limit orders.
b) Residual eligible limit orders shall be matched with market orders.
c) Market orders to be matched with market orders.
10. In case of pending unmatched orders in pre-open session, they shall be
shifted to the order book of the normal market following time priority.
Unmatched market orders will shift to the normal market order book as limit
orders at a price as discovered in the pre-open session.
11. If the price is not discovered in pre-open session then the orders entered in
the pre-open session will be shifted to the order book of the normal market
following time priority. The price of the first trade in the normal market shall
be the opening price.
12. The current risk management system for cash market shall be applicable to
pre-open session.
13. The following information shall be disseminated during pre-open session:
a) Indicative equilibrium price of the scrip
b) Indicative cumulative buy and sell quantity of the scrip
c) Indicative Index
14. This framework for call auction shall be reviewed after 3 months from the
commencement of the pre-open session
15. The Stock Exchanges shall issue the necessary guidelines in this regard
and shall put in place the necessary systems to ensure the
operationalization of the above.
16. The Stock Exchanges are advised to:
i) put in place the adequate systems and issue the necessary guidelines
for implementing the above decision.
ii) test the software for operational robustness and system integrity, well
before the commencement date to avoid any problems in the live
environment.
iii) design the software with sufficient flexibility to allow for enhancements
viz., extending the scope of call auction to other type of sessions,
scrips, as a result of policy review.
iv) make necessary amendments to the relevant bye-laws, rules and
regulations for the implementation of the above decision immediately.
v) bring the provisions of this circular to the notice of the member brokers
of the Exchange and also to disseminate the same on the website.
vi) communicate to SEBI, the status of the implementation of the
provisions of this circular in the Monthly Development Report.
vii) Stock exchange shall seek SEBI’s approval after the implementation of
the above steps and prior to the commencement of the pre-open
session.
17. This circular is being issued in exercise of powers conferred under Section
11 (1) of the Securities and Exchange Board of India Act, 1992 to protect
the interests of investors in securities and to promote the development of,
and to regulate the securities market.
Yours faithfully,
Harini Balaji
Deputy General Manager
022-26449372
harinib@sebi.gov.in
