What is Periodic Call Auction (PCA)

The Periodic Call Auction stock mechanism was introduced by the Securities and Exchange Board of India (SEBI) in 2013 with the objective of enhancing market stability and promoting fair trading practices, particularly for illiquid stocks. This mechanism involves structured trading sessions conducted at specified intervals throughout the trading day.

As per SEBI’s guidelines, illiquid stocks are generally characterized by the following criteria:

• An average daily number of trades of fewer than 50
• A daily trading volume of less than 10,000 shares

The PCA framework aims to improve price discovery and reduce volatility in such stocks by minimizing the impact of erratic or manipulative trades.

Periodic Call Auction Stock meaning

A Periodic Call Auction is a trading method where buy and sell orders for a stock are collected over a set period and matched at specific intervals. The price is determined based on the equilibrium point where maximum orders match. It is often used for illiquid stocks to improve transparency and price discovery.

How does a Periodic Call Auction work?

Under the Periodic Call Auction stock mechanism, the trading day is divided into six call auction sessions, each spanning one hour and commencing at 9:30 AM alongside the regular trading session. Each auction session follows a structured format, similar to the pre-market session, and consists of the following phases:
 

• Order Placement and Modification (45 minutes): Investors may place, modify, or cancel their orders during this period.
• Order Matching and Confirmation (8 minutes): The Exchanges perform order matching and confirm trades.
• Buffer Period (7 minutes): A transitional interval before the commencement of the next session.
   

The Periodic Call Auction stock system is structured into multiple fixed-time sessions throughout the trading day, specifically designed to enhance transparency, fairness, and efficiency in the trading of less liquid securities. Each session is divided into three sequential phases: the Order Placement Period, the Order Matching Phase, and the Buffer Period.

1. Order Placement Period
The Order Placement Period marks the commencement of each auction session, allowing market participants to actively engage in submitting, modifying, or cancelling their orders.

Duration: 45 minutes

Key Activities: Submission of new orders, modification of existing orders, and cancellation of pending orders

Strategic Significance: This phase provides participants with the opportunity to analyze market trends and adjust their trading strategies accordingly.

Market Access: Ensures equitable participation by granting all traders sufficient time to enter the market, fostering a level playing field.
 

2. Order Matching Phase 

Following the Order Placement Period, the Order Matching Phase involves the systematic matching of buy and sell orders to determine the execution price and volume.

Duration: Approximately 8 minutes

Matching Criteria: Orders are matched based on price priority—highest bid prices and lowest offer prices are given precedence.

Price Discovery: Facilitates the determination of the equilibrium price that maximizes traded volume.

Time Priority: In cases where orders have the same price, earlier submissions are prioritized to maintain order fairness.
 

3. Buffer Period

The Buffer Period is a transitional interval designed to maintain the integrity and orderly functioning of the auction system.

Duration: Approximately 7 minutes

System Maintenance: The trading system processes and updates all relevant records from the preceding phases in preparation for the next session.

Trading Restriction: No order activity is permitted during this period to ensure data accuracy and system readiness.

Market Stability: This pause reduces volatility by preventing abrupt shifts between trading phases and allows participants to prepare for the next auction cycle.

By structuring each auction session into clearly defined phases, the Periodic Call Auction system effectively addresses the challenges of trading illiquid stocks. This approach ensures robust price discovery, equitable access, and overall market stability, thereby reinforcing investor confidence and market integrity.

Penalty Criteria for Periodic Call Auction Trades

Penalty Criteria in Periodic Call Auctions for Illiquid Stocks

To uphold market integrity and promote disciplined trading behavior, specific penalty provisions are enforced during the trading of illiquid stocks through Periodic Call Auctions (PCA). The following outlines the key conditions and associated penalties:
 

1. Penalty Conditions: 

A penalty is applicable when a client’s maximum buy price is equal to or greater than their minimum sell price, resulting in an executed transaction. This rule is designed to prevent potential market manipulation and to ensure equitable trading practices.
 

2. Penalty Calculation: 

The financial penalty is calculated as the higher of the following: 

1% of the trade value, apportioned equally between the buy and sell sides (i.e., 0.50% each), or a flat fee of ₹5,000 per instance, per trading session.

Conclusion

Periodic Call Auctions (PCA) help stabilize trading in illiquid stocks by creating a structured environment that promotes fair price discovery and minimizes excessive volatility. By operating through fixed-time sessions with clearly defined phases, PCA enhances market transparency and fairness, supporting informed trading decisions and maintaining overall market integrity.

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