21 June 2024 Punjab Khabarnama : To ensure fair-price discovery of investment companies (ICs) and investment holding companies (IHCs), the market regulator has introduced a call-auction mechanism for these companies.
This has been done because scrips of ICs and IHCs were found to be trading much “significantly” below their book value because of the peculiarity of their revenue model.
Through a circular issued on June 20, the Securities and Exchange Board of India (Sebi) introduced a framework to conduct these call auction.
The circular gave the regulator’s reason for having these call auctions: “It is observed that scrips of a few listed ICs and IHCs are being traded infrequently and at a price which is significantly lower than the book value disclosed by these companies in their latest audited financial statements. Moreover, these companies generally have no day-to-day operations and hold investments in different asset classes including in scrips of other listed companies.”
It added, “The variance in the market price and book value of such ICs and IHCs is adversely affecting liquidity, fair price discovery and the overall interest of investors in scrips of such companies.”
Under the new mechanism, ICs and IHCs that have been trading for atleast a year, that have atleast 50 percent of their assets in scrips of other listed companies and that have their six month volume weighted average price (VWAP) of their scrip less than 50 percent of their book value per share will be eligible for the call auction.
In case the scrips of such ICs or IHCs are not traded during the previous six- months, the six-months VWAP of the scrip shall be taken as zero.
The circular added that, if the eligibility criteria is not met at any one of the stock exchanges, then the scrip will not be eligible for call auction at any of the stock exchanges.