In June this year, SEBI issued a circular that aims to ensure better price discovery for infrequently traded stocks of Investment Companies (ICs) and Investment Holding Companies (IHCs), protecting investors and improving the market’s fairness by conducting a “special call auction” without any price limits for better pricing of certain stocks. The first special auction will be held on October 28th, 2024, and future auctions will follow after the companies release their annual reports.
Here’s a simplified summary:
What do Investment Companies (ICs) and Investment Holding Companies (IHCs) do?
These entities primarily manage investments across various asset classes, such as stocks, bonds, real estate, and intellectual property, including shares of other listed companies. They generate income from these investments rather than by selling products or services. Their core function is the strategic allocation of capital. These companies generally have no day-to-day operations and hold investments in different asset classes including in scrips of other listed companies.
Context:
Few of the listed ICs and IHCs are being traded infrequently and at a price that is significantly lower than the book value disclosed by these companies in their latest audited financial statements. Their market prices are much lower than their actual value (as per their financial statements) and this difference between the market price and the actual value is causing low trading activity and affecting liquidity, fair price discovery, and the overall interest of investors in scrips of such companies.
Keeping in view the above factors, SEBI has decided to introduce a “special call auction” without price limits to help find a fair price for these stocks.
Eligibility criteria:
To qualify for this auction:
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The company must have been listed for at least a year.
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At least 50% of its assets should be invested in other listed companies.
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The 6-month Volume Weighted Average Price (VWAP) of the scrip shall be less than 50% of the book value per share of such company based on the present value of their investments in shares of other listed companies. In case the scrips of such ICs or IHCs are not traded during the previous 6- months, the 6-month VWAP of the scrip shall be taken as zero.
Example:
Auction Process:
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Stock exchanges will announce the auction 14 days in advance. You can check NSE’s announcement here
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For the auction to be valid, it needs at least 5 buyers and sellers.
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If successful on one exchange, that price will be used across all exchanges.
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The auction can be repeated daily until a price is determined, but only once a year.
The first special auction will be held in October 2024, and future auctions will follow after the companies release their annual reports.
List of Investment Companies (ICs) and Investment Holding Companies (IHCs) eligible for special call-auction mechanism
BSE
Source: https://nsearchives.nseindia.com/content/circulars/CML64544.zip
https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20241014-48