The Bombay Stock Exchange (BSE) today announced opening of daily trade in over 4,000 scrips exclusively listed on the bourse through call auction, wherein opening price is decided after matching all the pre-open buy and sell orders.
The move, seen as one of the BSE's attempts to take on its bigger but younger rival NSE, would help in cutting down high level of volatility and attracting investors towards the exchange.
The exchange said in a circular to its member brokers that it would implement pre-open call auction from April 4 in all the securities that are traded exclusively on its platform.
Both BSE and NSE began pre-open call auction facility in the stocks comprising their benchmark indices Sensex and Nifty from October 18, 2010. The market regulator Sebi had given its green signal for pre-open call auction in July last year.
The pre-open call auction begins at the market opening time at 9 am every day and continues for 15 minutes.
During this time, all the buy and sell orders for eligible stocks are collected and the trading price is determined on the basis of the overall buy-sell basket, rather than the normal practice of a price being determined after matching individual buy and sell orders.
The mechanism is said to reduce the quantum of volatility, typically visible in the first few minutes of trade.
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In the first 15 minutes, investors can place orders for eight minutes on the basis of which the exchanges will determine the rates at which trading will happen.
About 2,500 securities are listed on both BSE and NSE.
In addition to stocks listed on both the bourses, as many as 4,157 actively-traded stocks are listed exclusively on the BSE and it will launch call auction in all these stocks.
BSE said that a 20% price band would be applied on all the securities during the pre-open call auction session, except in cases where stocks have individual price bands.
However, in case of first-day trade in stocks listed through IPOs, there would be a price band of 100% for sell orders and 500% for buy orders, BSE said.
The bourse despite having a much larger number of listed stocks and being in business for a much longer period, lags behind NSE in terms of business volume.
The BSE has been in existence for over 135 years, but its business volumes are much lower than the NSE, which began operations in 1994. NSE overtook BSE to become the country's largest stock exchange in 1995. Nevertheless, BSE has been trying to bridge this gap over past few years.
Some of the steps taken by BSE on this front include the announcement of new derivative rates in December, 2009, lowering transaction costs and increasing the duration of trade by kicking off at 9 am. The NSE has also implemented this strategy of an early market opening time.