MC Explains: What the special pre-open session for RIL is all about and what it means for Nifty 50

A special pre-open session is conducted to help arrive at an opening price for securities being listed in the market, and limit volatility in price

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The National Stock Exchange (NSE) will conduct a special pre-open session for Reliance Industries’ stock on July 20, as the conglomerate is set to demerge its financial services business. Consequently, the new entity, Jio Financial Services (JFS) will be included in the Nifty 50 on the same day, said NSE.

But does this mean JFS is permanently a part of the Nifty 50 index? How will the pre-open session impact RIL shareholders? Let us break it down for you:

What is a special pre-open session?
It has been introduced to minimise volatility and discover the opening price of securities. It is conducted for one hour from 9 am to 10 am. It is somewhat similar to the 15-minute pre-open session ahead of the 9:15 am market opening every trading day.

Securities eligible for pre-open session-Initial Public Offerings of securities on first day of trading. This also includes SME (small and medium enterprise) IPOs

-Re-listed securities on the first day of recommencement of trading

-Stocks having derivatives contracts after undergoing corporate restructuring

RIL falls under the third category.

What happens in the special pre-open session (SPOS)?
Between 9:00 am to 9:45 am, orders can be entered, modified and cancelled. Only limit orders are accepted by NSE. A limit order allows investors to purchase or sell a stock at a specified price or better.

Between 9:45 am to 9:55 am, orders are matched, trades are confirmed and the opening price is determined. The last five minutes are used to transition from pre-open to normal market.

What will happen to RIL share prices?
The spun off entity, in this case Reliance Strategic Investments, will be included at 10 am in the Nifty 50 at a constant price. This constant price is the difference between the RIL’s closing price on T-1 day, in this case July 19, and the price derived during special pre-open session on July 20.

Hypothetically, if RIL closes at Rs 2,800 on July 19 and the SPOS price is Rs 2,600, then Reliance Strategic Investments will become 51st constituent of Nifty 50 at Rs 200. The new price of RIL is Rs 2,600.

Will Reliance Strategic Investments be retained?
Reliance Strategic Investments will be renamed Jio Financial Services and listed on exchanges at a later date.

The new constituent that comes into Nifty 50 on July 20 is not tradeable. It will continue to remain in the index at the constant price till Reliance Industries announces the allotment and listing date for Jio Financial Services.

This means, investors will not be able to buy and sell shares of the demerged entity right after July 20.

Shareholders of RIL will get 1 share of the demerged entity Reliance Strategic Investments for every 1 share held by them in the conglomerate.

Also Read: RIL shareholders may get 3-5% richer after Jio Financial Services is formed

When will the demerged entity be excluded?
The spun off entity, or the 51st entity, shall be removed from the index after the end of the third day of its listing.

In case the stock hits the price band on the first two days of these three days, then the exclusion date shall be deferred by another three days.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.​