What is Periodic Call Auction & Why Are Some Socks Traded In This Category

What is periodic call auction

Introduction

In 2013, SEBI (Securities and Exchange Board of India) introduced the periodic call auction.
The key motive behind the step was to reduce volatility in illiquid stocks.
As per the SEBI guidelines, illiquid stocks have an average daily trade below 50.
Also, their trading volume is less than 10,000, among other conditions.

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In the periodic call auction, beginning at 9:30 AM and operating similarly to pre-market equity stock sessions, six auction sessions of an hour each are conducted throughout each trading day.
Participants are given 45 minutes to put, modify, or cancel orders. After that, all received orders are matched within eight minutes, and then trade confirmation takes place. Also, there is a seven-minute buffer before the commencement of another call auction session.
Periodic call auctions provide an organised and controlled trading environment for illiquid stocks. They help guarantee fair price discovery while decreasing excessive volatility.

Session	Start Time- Order Placement	Order matching	Buffer period
1	09:30 a.m. – 10:15 a.m.	10:15 a.m. –10:23 a.m.	10:24 a.m. – 10:30 a.m.
2	10:30 a.m. – 11:15 a.m.	11:15 a.m. – 11:23 a.m.	11:24 a.m. – 11:30 a.m.
3	11:30 a.m. – 12:15 p.m.	12:15 p.m. – 12:23 p. m.	12:24 p.m. – 12:30 p.m.
4	12:30 p.m. – 01:15 p.m.	01:15 p.m. – 1:23 p.m.	01:24 p.m. – 01:30 p.m.
5	01:30 p.m. – 02:15 p.m.	02:15 p.m. – 2:23 p.m.	02:24 p.m. – 02:30 p.m.
6	02:30 p.m. – 03:15 p.m.	03:15 p.m. – 3:23 p.m.	03:24 p.m. – 03:30 p.m.

If you plan to purchase or sell illiquid stocks subject to periodic call auctions, orders should be placed within 45 minutes and executed if your bid matches within eight minutes.

Illiquid stocks refer to securities that cannot be easily converted to cash, making trading difficult or impossible.
Finding someone willing to buy or sell at a fair price makes trading impossible. Thus, illiquid stocks have lower values than liquid ones.
These stocks may be risky investments because it can be challenging to manage their risks. However, they could offer high returns should the fortunes of their company improve.
Illiquid stocks are unpopular with investors because of their risk-prone nature.
For instance, in an emergency scenario requiring fast selling for emergency expenses, you may not find buyers willing to accept your price quickly enough.
So, it's important that investors carefully consider all their options when investing in these types of investments.
However, there are a few advantages as well. Owners of illiquid stocks may benefit from purchasing shares at a discount due to the fewer buyers and sellers on the market.
This makes it possible to buy it at prices lower than its true worth. Investors can then potentially gain from any increase in price over time.

Now that you know what a periodic call auction is and what shares fall under this category, you must consider investing wisely. Illiquid stocks are publicly traded companies' shares.
Yet, as stated earlier, illiquid stocks can't be liquidated easily.
However, they have the potential to offer greater returns. Hence, invest wisely after considering all the pros and cons and your risk tolerance.