BAJAJ FINSERV DIRECT LIMITED
Stocks Insights

Periodic Call Auction: Meaning, Process & Market Use

authour img
Nupur Wankhede

Table of Contents

Learn how Periodic Call Auctions work in stock exchanges to match buy and sell orders at a single equilibrium price.

A Periodic Call Auction (PCA) is a trading mechanism used in stock markets to improve price discovery and liquidity in securities that do not trade frequently. Instead of continuous buying and selling, orders are collected over a fixed time window and matched at a single equilibrium price. This system is mainly applied to illiquid or thinly traded stocks to reduce volatility and ensure fair execution for market participants.

What Is a Periodic Call Auction

A Periodic Call Auction is a market mechanism where buy and sell orders are accumulated for a specific period and executed together at a single price. Unlike continuous trading, transactions do not occur instantly after order placement. The objective of a periodic call auction is to bring together dispersed liquidity and determine a fair market price based on aggregated demand and supply during each auction session.

What Is a Periodic Call Auction in the Stock Market

In the stock market, a periodic call auction is used for securities that experience low trading volumes or irregular price movements. During the auction window, investors can place, modify, or cancel orders. At the end of the session, all valid orders are matched at one price that maximises traded quantity. This method helps stabilise prices and prevents sharp movements caused by isolated trades.

How Periodic Call Auction Works

The working of a periodic call auction follows a structured process:

  • The exchange announces a fixed auction session time

  • Buy and sell orders are collected without execution

  • Orders can be revised or withdrawn during the session

  • At session close, an equilibrium price is calculated

  • Orders are matched at the price with maximum executable volume

If no matching price is found, the auction may end without trades.

Periodic Call Auction Session Timings

Periodic call auctions operate at predefined intervals. Typical timing structure includes:

  • Order collection period

  • Order modification and cancellation window

  • Order matching and trade execution phase

  • Dissemination of auction results

Exact timings may vary based on exchange rules and security classification.

Periodic Call Auction in BSE

The Bombay Stock Exchange (BSE) uses the periodic call auction mechanism mainly for illiquid securities listed under specific trading groups. Stocks with low trading frequency are shifted to PCA to enhance transparency and improve price discovery. By aggregating orders, BSE reduces the risk of price manipulation and ensures that trades reflect genuine market interest rather than isolated transactions.

Order Matching Mechanism in Periodic Call Auction

Order matching in a periodic call auction is based on a price-time priority system:

  • The system identifies prices with the highest tradable quantity

  • Buy and sell orders are matched at a single clearing price

  • In case of multiple eligible prices, the price closest to the last traded price is chosen

  • Remaining unmatched orders are carried forward or cancelled

This mechanism ensures fairness and optimal execution.

Advantages of Periodic Call Auction

Key advantages of periodic call auctions include:

  • Improved price discovery for illiquid stocks

  • Reduced volatility caused by sporadic trades

  • Fair execution through aggregated demand and supply

  • Lower risk of price manipulation

  • Transparency in thinly traded securities

These benefits make PCA suitable for stabilising low-liquidity markets.

Disadvantages & Limitations of Periodic Call Auction

Despite its benefits, PCA has certain limitations:

  • No immediate execution of orders

  • Lower participation during auction sessions

  • Limited suitability for active traders

  • Possibility of no trades if matching fails

  • Reduced flexibility compared to continuous trading

These factors may restrict its appeal for short-term traders.

Periodic Call Auction vs Continuous Trading

Here’s a comparison of periodic call auctions and continuous trading, showing differences in execution timing, price discovery, liquidity, and volatility:

Basis Periodic Call Auction Continuous Trading

Order execution

At fixed intervals

Real-time

Price discovery

Single equilibrium price

Ongoing

Liquidity focus

Low-liquidity stocks

Actively traded stocks

Volatility

Lower

Higher

Execution speed

Delayed

Immediate

Market Participants in Periodic Call Auctions

Periodic call auctions are typically used by the market participants dealing in illiquid or infrequently traded stocks. Long-term investors seeking fair pricing benefit more than intraday traders. Institutional participants and investors focused on minimising volatility rather than execution speed may also find PCA useful.

Conclusion & Key Takeaways

Periodic call auctions play an important role in maintaining market efficiency for illiquid securities. By aggregating orders and executing trades at a single equilibrium price, they enhance transparency, reduce volatility, and support fair price discovery. While not suitable for all trading strategies, PCA remains an important market mechanism for stable and orderly trading.

Disclaimer

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

FAQs

What is the meaning of periodic call auction in stocks?

A periodic call auction is a trading method where buy and sell orders are collected over a fixed interval and executed together at a single price, helping determine a fair price for securities during the auction period.

Periodic call auctions are used for illiquid stocks to aggregate limited orders, reduce the impact of isolated trades, and prevent sharp price fluctuations, thereby improving the overall price discovery and market stability for thinly traded securities.

The session timings for periodic call auctions include phases for order collection, order modification, and final order matching. These timings are defined by the exchange to ensure transparency and orderly execution of trades at specified intervals.

In periodic call auctions, all collected orders are matched at a single price that maximises the total tradable volume. This price is determined by the exchange mechanism to ensure the highest possible number of shares can be traded efficiently.

Yes, the Bombay Stock Exchange (BSE) applies periodic call auctions primarily for thinly traded securities. The mechanism helps manage limited liquidity, reduce volatility, and provide a fairer price discovery process for such stocks.

Periodic call auctions improve price discovery by aggregating orders, reduce volatility caused by individual trades, and enhance market fairness. They provide a structured trading environment, particularly benefiting illiquid securities with limited market activity.

The main disadvantages include delayed execution since trades occur at intervals rather than continuously, and limited participation if investors prefer real-time execution. These factors may restrict immediate liquidity and responsiveness in fast-moving markets.

Periodic call auctions execute orders at fixed intervals, aggregating them for a single matching price, whereas continuous trading allows real-time order matching and execution. PCA focuses on fairness and price stability, while continuous trading prioritises speed and immediate liquidity.

View More
Hi! I’m Nupur Wankhede
BSE Insitute Alumni

With a Postgraduate degree in Global Financial Markets from the Bombay Stock Exchange Institute, Nupur has over 8 years of experience in the financial markets, specializing in investments, stock market operations, and project management. She has contributed to process improvements, cross-functional initiatives & content development across investment products. She bridges investment strategy with execution, blending content insight, operational efficiency, and collaborative execution to deliver impactful outcomes.

Home
Home
ONDC_BD_StealDeals
Steal Deals
Free CIBIL Score
CIBIL Score
Free Cibil
Explore
Explore
chatbot
Yara AI