SEBI Proposal on IPO and Relisting Price Discovery
Why in the news
SEBI suggested an overhaul of how opening prices are found for new and relisted shares after the existing band formula distorted prices; in one case 90% of buy orders were turned down for lying outside the bands.
Key facts
- Session: pre-open call auction, a one-hour slot from 9 am to 10 am on day one of listing or relisting.
- Problem: the dummy price band and base-price method caused distorted price discovery.
- Aims: sharper discovery, fewer rejected orders, protection for retail investors, especially in volatile SME listings.
Proposed changes
| Area | Existing position | Proposal |
|---|---|---|
| Mainboard IPO band | -50% to +100% of base price | Widens automatically by 10% when equilibrium price nears the limit |
| SME IPO band | ±90%, no flexing | Flexing brought in for SME issues too |
| Widening at extremes | – | Requires validation by 5 unique PAN-based investors |
| Relisting base price | – | Most recent traded price, provided it is within 6 months |
| No recent price | – | Certificates from independent valuation agencies |
| Suspension over 6 months | – | Whichever is lower among the book values given by two independent valuers |
Background
- Call auction: orders are gathered over a window and matched together at one equilibrium price, unlike continuous trading.
- Price discovery: the market finding a price through demand and supply; vital on day one to curb volatility.
- Dummy price band: a provisional range capping order prices on the first day.
- Relisted stock: a share suspended earlier and readmitted once problems are fixed.
- Mainboard IPOs are larger issues on the main platforms; SME IPOs come from smaller firms on BSE SME and NSE Emerge.
Why SME listings are volatile
- Small market capitalisation invites manipulation.
- Thin liquidity magnifies price swings.
- Ownership is concentrated and analyst coverage is low.
Exam angle
- Regulator: SEBI, statutory body under the SEBI Act, 1992.
- Session timing: 9 am to 10 am.
- Valuer rule: lower of two book values.