What is periodic call auction and why are some stocks traded in this way?

What is periodic call auction and why are some stocks traded in this way?

SEBI introduced the concept of Periodic call auctions (PDF) in 2013 as a measure to reduce volatility in illiquid stocks. Stocks that meet specific criteria of illiquidity, as outlined in the SEBI circular, such as having an average daily number of trades of less than 50 and a daily trading volume of less than 10,000, among other conditions, are included in this category.

Under the Periodic call auction mechanism, six auction sessions are held throughout the trading day, each lasting for one hour. These sessions commence at 9:30 AM and operate similarly to the pre-market session conducted for equity stocks. During the 45-minute window, participants can place, modify, and cancel their orders. All orders received are then matched within the next eight minutes, and the resulting trades are confirmed. A seven-minute buffer period is provided before the next call auction session starts. The implementation of Periodic call auctions allows for a more structured and controlled trading environment for illiquid stocks, ensuring fair price discovery and reducing excessive volatility.

If the idea is to buy or sell such illiquid stocks, which are on periodic call auctions, the orders must be placed in the first 45 minutes, and the client will be able to buy or sell based on whether the order matches in the next 8 minutes. For more details, you can check the BSE FAQ and NSE circulars BSE FAQ and NSE circular.