New Delhi, May 21: The Securities and Exchange Board of India (SEBI) has proposed significant changes to the process of determining share prices during IPO listings and re-listings, as outlined in a consultation paper released on Thursday.
The market regulator stated that the current price discovery system is artificially suppressing share prices, leading to frequent upper circuit limits once trading begins.
SEBI suggested that when strong investor demand is evident, the price band should automatically and swiftly increase. This would reduce the need for manual intervention by exchanges.
The statement emphasized, “The system for increasing the dummy price band should be uniform across all exchanges and should allow for immediate adjustments when necessary.”
According to SEBI, exchanges should autonomously increase the dummy price band in increments of 10 percent based on pre-established rules and consultations with other exchanges.
The regulator also mentioned that this arrangement should remain in effect during the random closure period from 9:35 AM to 9:45 AM.
SEBI pointed out that current regulations are causing a significant number of genuine buy orders to be rejected during the pre-open auction session, preventing the market from determining the correct opening price.
As an example, SEBI noted that nearly 90 percent of buy orders for a re-listed share were rejected because the bids exceeded the limits set by the exchange.
Additionally, SEBI proposed major changes to the process of setting initial share prices for re-listed companies. Instead of relying on outdated or artificially low reference prices, recent market prices or independent valuation reports will be utilized.
SEBI stated, “A call auction session will only be deemed successful if the price discovery is based on orders from at least five different pan-based buyers and sellers.”
Currently, there is no price band for SME IPO call auction sessions. However, due to the high volatility in SME shares, stock exchanges have set a price band exceeding 90 percent, without any flexing criteria.
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