BSE, NSE launch 15-minute ‘pre-open’ window

The nation's two premier bourses, the National Stock Exchange and the Bombay Stock Exchange, have started the 15-minute pre-open session call auction from today to reduce price volatility and enable better price discovery.

"The NSE has commenced mock trading for pre-open call auction and we are ready to launch it on 18 October," NSE's chief technology officer Ravi Apte said in Mumbai on Saturday.

The pre-open market, christened call auction session, will operate between 9 am and 9.15 am on both the cash as well as the derivatives segments of the two exchanges. The pre-session trading in these stocks is mainly aimed at reducing volatility in stock prices because of developments taking place after the close of trading in the previous session.

In the new system, trading orders will accumulate during the first seven minutes, after which the market will close anytime during the eighth minute of trade. This will be followed by a one-minute break in trade and then, in the next four minutes, trades will be matched and confirmations sent to brokers. Between 9.12 am and 9.15 am orders which are not executed will be moved to the regular market.

In the pre-session call auction, the prices of 50 stocks can rise or fall a maximum of 20 per cent from its last close. The regular trading for these stocks, along with those other than these 50, will now start at 9.15 am and close at 3.30 pm.

The introduction of pre-open session with a call auction mechanism is expected to reduce the quantum of volatility, typically visible in the first few minutes of a trading session.

The call auction helps reduce price volatility due to multiple matching of orders at a single price, provides greater liquidity due to deeper demand supply schedule, leads to better price discovery, reduced market impact and simultaneity of trades eliminates possibility of front-running customer orders, Apte said.

The Securities and Exchange Board of India had asked the exchanges to introduce call auction in pre-open session. Initially the call auction session will be held for shares included in the Nifty, and SEBI will decide to add more scrips for pre-open call auction after about three months, he said.