What is a Periodic Call Auction (PCA)?

5 mins read
by Angel One
Discover how Periodic Call Auctions stabilise illiquid stock trading. This method ensures fair pricing and reduced volatility. Dive in to learn more.

In the landscape of stock trading, not all stocks enjoy high liquidity or frequent trades. To manage the trading of such illiquid stocks, exchanges deploy a method known as the Periodic Call Auction (PCA). This system is pivotal in maintaining order and reducing volatility for stocks that do not meet the usual criteria for liquidity. 

Periodic Call Auction 

The Periodic Call Auction, introduced by the Securities and Exchange Board of India (SEBI), is a structured trading session specifically designed for illiquid stocks with low trading volumes and minimal daily trades. The aim is to provide a more controlled trading environment, facilitate fair price discovery, and reduce the excessive price fluctuations these stocks might otherwise experience on the open market.

Key Features of Periodic Call Auction

  • Illiquidity Criteria: Stocks classified for periodic call auctions typically have less than 50 trades per day and a daily trading volume below 10,000 shares.
  • Structured Sessions: There are six designated auction sessions each trading day, beginning at 9:30 AM and lasting for one hour each. These sessions include specific periods for order placement, matching, and a buffer period for administrative adjustments.
  • Order Placement and Matching: In each session, traders have a 45-minute window to place, modify, or cancel orders. This is followed by an 8-minute window where orders are matched based on the best buy and sell prices available.
  • Buffer Period: A 7-minute buffer follows the matching period, preparing the system for the next auction session

How Periodic Call Auction Works? 

In the share market, managing illiquid stocks can be particularly challenging due to their low trading volumes and limited market activity. To address this, stock exchanges implement a structured mechanism known as Periodic Call Auctions (PCA). Below is a detailed breakdown of the daily session timings involved in this trading method.

Session Order Placement Period Matching Window Buffer Period
1 09:30 AM – 10:15 AM 10:15 AM – 10:23 AM 10:24 AM – 10:30 AM
2 10:30 AM – 11:15 AM 11:15 AM – 11:23 AM 11:24 AM – 11:30 AM
3 11:30 AM – 12:15 PM 12:15 PM – 12:23 PM 12:24 PM – 12:30 PM
4 12:30 PM – 01:15 PM 01:15 PM – 01:23 PM 01:24 PM – 01:30 PM
5 01:30 PM – 02:15 PM 02:15 PM – 02:23 PM 02:24 PM – 02:30 PM
6 02:30 PM – 03:15 PM 03:15 PM – 03:23 PM 03:24 PM – 03:30 PM

The periodic call auction stock system operates through multiple fixed-time sessions throughout the trading day. Each session follows a specific sequence: 

1. Order Placement Period

The Order Placement Period is a crucial initial phase in the Periodic Call Auction, where market participants engage actively by placing, modifying, or cancelling their orders. This period is designed to ensure that all traders have a fair chance to execute their trading strategies effectively.

  • Duration: This period lasts for the first 45 minutes of each auction session.
  • Activities Allowed: Participants can place new orders, modify existing ones, or cancel them.
  • Strategic Importance: Allows traders to adjust their positions based on real-time market analysis and their expectations for future market movements.
  • Equitable Access: Ensures all participants have equal opportunities to engage in trading, enhancing market fairness.

2. Order Matching Phase

During the Order Matching Phase, the auction system processes all the orders submitted in the previous phase to find matches between buy and sell orders. This phase is vital for determining the market price of the stocks involved.

  • Duration: This phase lasts about 8 minutes following the order placement period.
  • Priority Rules: Orders are matched based on the best prices offered; highest bids for buys and lowest offers for sells are prioritised.
  • Price Discovery: The matching process helps in establishing the equilibrium price where the maximum volume of shares can be exchanged.
  • Time Prioritisation: If prices are equal, orders are then matched based on the chronological order of submission.

3. Buffer Period

The Buffer Period serves as a transitional phase that allows the system to prepare for the next cycle of order placements and matches. This short pause is essential for maintaining the orderly function of the auction process.

  • Duration: Typically around 7 minutes, this period occurs after order matching and before the next order placement period begins.
  • System Updates: During this time, the trading system updates all records and prepares for the next phase.
  • No Trading Activity: No orders can be placed or modified during this period, ensuring that all data from the previous phase is accurately processed.
  • Market Stability: This pause helps to stabilise the market by preventing abrupt transitions and ensuring that participants are ready for the next round of trading.

By structuring the auction into these distinct phases, the Periodic Call Auction system efficiently manages the complexities of trading illiquid stocks, ensuring transparency, fairness, and stability in the market.

Penalty Criteria for Periodic Call Auction Trades

In the trading of illiquid stocks through Periodic Call Auctions (PCA), specific penalty criteria are enforced to maintain market integrity and discipline among traders. Here’s a breakdown of these criteria:

  • Penalty Conditions: A penalty is imposed if the maximum buy price entered by a client is equal to or exceeds the minimum sell price entered by the same client, resulting in a transaction. This rule helps prevent potential manipulations and ensures fair trading practices.
  • Penalty Calculations: A financial penalty is levied either as 1% of the trade value (divided equally between buy and sell actions, i.e., 0.50% each) or a flat rate of ₹5000, whichever is higher per instance per session.

Traders and trading members are advised to exercise due diligence and ensure compliance with these regulations to avoid penalties. For more detailed information, you can visit the NSE or BSE websites, where they provide comprehensive details about the periodic call auction mechanisms and the list of stocks eligible for these auctions. 

Wrapping Up  

In summary, Periodic Call Auctions (PCA) effectively stabilise illiquid stock trading by providing a structured environment for fair price discovery and reducing excessive volatility. With fixed-time sessions and distinct phases, PCA ensures market transparency and fairness, benefiting traders and maintaining market integrity.

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What types of orders are allowed in Periodic Call Auctions?

In Periodic Call Auctions, only limited orders are permitted. Market orders, Immediate or Cancel (IOC), and Good Till Triggered (GTT) orders are not allowed. This restriction helps maintain order in the trading of illiquid stocks and prevents price manipulation.

What are the benefits of trading in a Periodic Call Auction?

Trading in a PCA offers a more controlled environment for stocks with lower liquidity, which helps achieve fair price discovery and reduce price volatility. This system also aims to protect investors by minimising the potential for large, unexpected price swings often associated with illiquid stocks.

What happens if an order is not executed during a PCA session?

If an order placed during a PCA session is not executed, it does not automatically carry over to the next session. Traders need to re-enter their orders in subsequent PCA sessions if they still wish to execute them.

Can I participate in a PCA for any stock?

Participation in a PCA is limited to stocks designated as illiquid by the stock exchanges. These are identified based on criteria such as low daily trading volume and number of trades. The list of such stocks is updated quarterly and can be found on the respective stock exchange websites.

Where can I find a list of stocks traded in Periodic Call Auctions?

Lists of stocks eligible for trading in PCAs are regularly updated and published by stock exchanges like the NSE and BSE. These lists can be accessed directly through their official websites or through trading platforms that support PCA trading.