New Delhi, November 10 (HS): The Securities and Exchange Board of India (SEBI), the country’s stock market regulator, is considering a significant overhaul of the pre-open trading session to make the process more transparent, consistent and secure. The regulator intends to standardise the order acceptance mechanism across all stock exchanges. Under the proposed framework, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Metropolitan Stock Exchange (MSE) will be required to verify the availability of sufficient margins before displaying any order in their main order books.

Market experts believe the proposed measure could bring an important technological change to the trading system. Whenever an investor places an order to buy or sell shares during the early morning trading session, the exchange will first verify whether the required funds or margins are available. Only after confirming margin sufficiency will the order be admitted to the order book.

However, the time taken to complete this verification will not affect the investor’s original order timestamp. The actual time spent on the verification process will not be added to the order submission time. For instance, if an investor places an order at 9 am and the verification process is completed at 9:04 am, the order will still carry the original 9 am timestamp. In other words, the time at which the exchange initially receives the order will determine its timestamp, irrespective of how long the margin verification takes.

At present, differences exist in the order-processing mechanisms followed by the country’s major stock exchanges. While the National Stock Exchange verifies margin availability before accepting and displaying an order, the Bombay Stock Exchange displays the order first and conducts the margin verification subsequently. Orders found to be unsupported by sufficient margins are then cancelled and removed from the order book. The Metropolitan Stock Exchange also follows a pre-verification mechanism.

SEBI believes that such inconsistencies can make it difficult to obtain an accurate picture of market demand and supply and may also create opportunities for misuse. Differences in order-processing procedures can affect the priority assigned to orders, particularly when investors place orders simultaneously across multiple exchanges.

The orders entered during the pre-open session play a crucial role in determining the indicative opening prices of stocks when regular market trading begins. If a trader does not have sufficient funds but places a large order without the required margin, the order could temporarily distort the indicative price of a stock. This could create an artificial impression of demand or supply and potentially influence the stock’s opening price.

The proposed framework is expected to address these concerns by ensuring that only orders backed by adequate margins are displayed in the order book. It would also help protect genuine investors by preserving their original timestamps and ensuring that delays in margin verification do not affect their position in the order queue.

The regulator has reportedly held detailed discussions with the relevant stakeholders on the proposed framework, with broad agreement emerging on the changes. The mechanism may also be extended to the Closing Auction Session (CAS) in the future. However, SEBI is yet to issue a final regulatory framework or announce an implementation timeline.

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Hindusthan Samachar / Jun Sarkar