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The Securities and Exchange Board of India (SEBI) has initiated a special call auction mechanism for select holding and investment companies from today. The move is part of SEBI’s June 2024 circular designed to improve price discovery and ensure fair valuation for such entities.

The key objective of SEBI’s initiative is to facilitate fair price discovery for companies whose market value significantly trails their book value, particularly among holding and investment firms.

For unaware, Price discovery is the fundamental process in any marketplace where buyers and sellers interact to establish the current market price of an asset, commodity, or security. At its core, price discovery is about finding the equilibrium point where the quantity buyers are willing to buy meets the quantity sellers are willing to sell.

According to SEBI’s guidelines, companies eligible for the special call auction must have at least 50 per cent of their assets invested in other companies. The 6-month volume-weighted average price (VWAP) of their shares should be at least 50 per cent lower than their book value.

To ensure transparency and proper price discovery, SEBI has stated that the special call auction will not have a price band. The session will be considered successful if trades are executed with at least five different PANs. If not, the auction will continue until the condition is met.

The auction is intended to increase liquidity, enhance fair valuation, and boost investor confidence in these undervalued companies. The first such auction took place in October 2024 and can be repeated once a year.

A total of nine holding and investment companies are participating in today’s special call auction. These include:

Abhay Shukla is a Senior Sub-Editor at Zee Business, where he covers the stock markets, corporate news, personal finance, technology, and auto sectors.

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