Periodic Call Auction In "Illiquid" Scrips - How It Works??

SEBI has announced removal of regular trading of stocks that are illiquid in stock exchanges based on different criteria. These stocks have started trading through periodic call auction from April 8, 2013. The online trading platform of leading brokerages like HDFC Securities and Kotak Securities didn't allow investors to place orders through this mechanism. This has resulted in panic and the volume on these stocks have crashed in both BSE and NSE.

How It Works??

Within the 60 minutes of every call auction session, 1st of which begins at 9.30 am, part I of the session - 44/45 minutes duration - is for order entry, modification & cancellation. Now the important thing to understand is that unless you are buying/selling a scrip which is on continuous circuits, in which case it will open itself with orders on UC/LC, for all other scrips, this session is basically playing hide-n-seek/bluff with multiple other investors.

Since orders can be changed / cancelled till the very end of this session, the last few minutes are when things actually heat up i.e.the last 5-6 minutes is the "business end" of the session. This is when you need to be online / on the phone to your broker to change your order as per what the other parties are doing, to give your order the best chance to be executed.

For example, if you are buying scrip X at Rs 5.00 & there is a seller of sufficient qty of "X" for Rs 5.00, suddenly if 2 minutes before the close of Part - I of the session if the seller suddenly changes his order to RS 5.25 instead, you need to take a decision on whether to match his new rate, and if you decide to match it, you need to complete your order modification before the 44th/45th minute, else once we finish with Part - I & enter Part - II of the call auction session, your order will NOT be matched.

Part - II will be solely for matching of orders present in the system at the end of the 44th/45th minute - it will take upto 8 minutes. You will be able to see if your order is executed, but nothing else.

Part - III is a 7 minute or so gap till the start of the next hourly call auction session. Nothing happens here except all the pending unmatched orders get purged.

The above is how each hourly session works, within that you will have to get used to the nuances / the games people play. For example if you match someone's order too soon, he may withdraw it or try for a better price, before the 44th/45th minute. So ideally you should be doing your matching close to the end of Part - I of the session.

Net result - Investors need to be online / talking to your broker between the 40th & 45th minute of each hourly call auction session to give themselves the best chance to execute an order. i.e. between 10.10 to 10.15 am, 11.10 to 11.15 am, and so on till between 3.10 to 3.15 pm.

If a broker has many clients, dealing in many "illiquid" scrips, it will be an impossible task for him to attend to all the clients in these crucial 5-6 minutes.

No hidden qty orders are allowed which makes it difficult to execute large orders, because if you reveal a buy large order, person on selling side disappears, or else many small competitors appear on buy side.

The author of the article is Bosco Menezes. He can be reached at boscom@gmail.com

Source : Equity Bulls

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