Offer For Sale: NSE, BSE unable to broadcast actual OFS price at closing time, brokers complain

Brokers are facing difficulty in Offer For Sale (OFS) trading at the closing time of a trade. The National Stock Exchange and the Bombay Stock Exchange are not able to broadcast the actual price of OFS at the closing time.

A broker told Moneycontrol, "Recently in HDFC Asset Management Company's OFS, brokers were not able to get the actual price of the OFS rate after 3.22 PM, and exchanges updated prices and volume even after 30 minutes."

Another broker who is a part of broker association told Moneycontrol, "This is the case in every OFS. The technology of exchanges is not that much powerful to handle such a large number of transactions at the closing time".

A senior management official of a large broker firm told Moneycontrol, "Due to frequent modification in the OFS bidding price and the deletion of trades in the last five minutes to avail OFS arbitrage between the cash price and the OFS' weighted average price, it is observed many times that the system of an exchange is not able to broadcast the correct and actual price of OFS in the closing time It makes many retail investors suffer. Actually, on the other side, the prop brokers take away retail discounts into their own pockets".

A Gujarat-based broker told Moneycontrol, "It is important to note that the cumulative bid for a retail investor should not cross Rs 2 lakh. In this case, lots of Prop brokers who trade in their own account also participate in OFS by using their clients' account to avail benefits of discount in the retail category".

A broker further said, "Some prop Brokers offer Rs 500 per PAN of an individual retail client. By using a retail PAN number, prop brokers make offline order entries in the last five minutes of the closing time of the OFS day by uploading into the BSE/NSE order-taking OFS window".

As per SEBI guidelines, it is mandatory for companies to offer a minimum 10 percent reservation for retail investors.

Neither the NSE nor the BSE has not responded to the query.

How to participate in an OFS

Any retail investor (an individual investor) can participate in an OFS. But, in order to do that, you need to have a trading account and a demat account. You can bid in an OFS directly through your online trading portal or can place a bid through the help of your dealer.

Unlike IPOs, no documents are required to bid in an OFS. All you need to provide is the quantity and price you are ready to pay for the OFS issue.

Bidding process

In order to get shares allocated in an OFS, you need to bid at a price higher than the ‘floor price’. A floor price is the minimum price at which you can apply in the OFS. Any bid lower than this price is not accepted.

OFS shares are generally allocated in two ways, Single clearing price and multiple clearing price.

In case of a single clearing price, all investors are allocated shares at the same price. But, in case of multiple clearing price; shares are allocated to investors on a price priority basis.

For example, two investors - Anirudh and Govind - apply for an OFS. Anirudh places a bid at Rs 50 per share while Govind places a bid at Rs 60 per share. In this example, Govind would be given preference over Anirudh when shares are allocated.

Luckily for investors, there is another option available: the cut-off price option. A cut-off price is the lowest price at which an investor is allocated shares during an OFS. This way, the investor can simply apply for shares at the cut-off price without worrying about price discovery at the time of bidding.

"Details are consolidated by the exchanges, and then the data is shared," a source in exchanges told Moneycontrol.