NEW DELHI — The Securities and Exchange Board of India has proposed changes to the way stock prices are discovered during IPO listings and re-listings, saying the current system can suppress opening prices and lead to repeated upper circuits once trading begins.
In a consultation paper issued Thursday, the market regulator proposed automatic and faster expansion of price bands when strong investor demand appears during the pre-open auction session. SEBI said the mechanism for flexing “dummy” price bands should be uniform across exchanges and should happen immediately when required.
Under the proposal, exchanges would expand dummy price bands in multiples of 10%, either automatically through predefined logic or in consultation with other exchanges. The mechanism would also apply during the random closure period between 9:35 a.m. and 9:45 a.m.
SEBI said the current system has led to the rejection of large numbers of genuine buy orders during pre-open auctions, preventing markets from arriving at a fair opening price. The regulator cited one re-listed stock in which nearly 90% of buy orders were rejected because bids fell outside exchange-imposed ranges.
The regulator also proposed changes to how starting prices are determined for re-listed companies. Instead of relying on outdated or artificially low reference prices, SEBI said exchanges should use recent market prices or independent valuation reports.
SEBI said a call auction session should be considered successful only if price discovery is based on orders from at least five PAN-based unique buyers and sellers.
The regulator also noted concerns in SME IPOs, where there is currently no formal price band for the call auction session. Given volatility in SME-listed stocks, exchanges have been applying price bands of more than 90%, but without clear flexing criteria. (Source: IANS)
