The nation's two premier bourses-- National Stock Exchange and Bombay Stock Exchange-- will start the 15-minute pre-open session call auction from October 18.
"The pre-open session call auction will be launched from October 18. The mechanism will start simultaneously on both the bourses," National Stock Exchange Managing Director and Chief Executive Officer Ravi Narain told PTI.
In July this year, capital market regulator Securities and Exchange Board of India had given its green signal for the introduction of pre-open session call auction on the bourses.
In a call auction practice, participants indicate their willingness to buy or sell units of a security by placing an order for a number of units at the prevailing price before the opening of trade.
The mechanism, known as 'pre-open session call auction', will last for a duration of 15 minutes (from 9:00 am to 9:15 am) and will be introduced on a pilot basis by the BSE and NSE.
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 trade, analysts said.
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Experts believe this mechanism will help retail as well as institutional investors.
"This system will reduce price volatility due to multiple matching of orders at a single price, better price discovery and also dilute market impact," a senior official at the BSE explained.
"Another advantage of this mechanism is a fairer market especially for small, non professional investors because all trades get executed at the same price," he added.
According to exchange official, a uniform price band of 20 per cent will be applicable to all eligible securities during the pre-open session.
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.
Initially the call auction session will be applicable for those stocks which are the part of Sensex and Nifty.
Sensex, the benchmark index of BSE, consists 30 blue-chip stocks, while Nifty -- the NSE barometer-- is composed of 50 scrips.