SEBI Proposes Overhaul Of IPO, Re-Listing Price Discovery Mechanism

Securities and Exchange Board of India (SEBI) has proposed a sweeping overhaul of how stock prices are discovered during IPO listings and re-listings, after finding that the current system was artificially suppressing prices and triggering repeated upper circuits once trading begins.

In a consultation paper issued Thursday, the regulator said existing guardrails used during the pre-open auction session were rejecting a large number of genuine buy orders, preventing markets from finding a fair opening price. In one instance cited by SEBI, nearly 90% of buy orders in a re-listed stock were rejected because bids fell outside exchange-imposed ranges. 

ALSO READ | SEBI Proposes Allowing Investment In Mutual Funds Via Salary Deductions

The regulator has now proposed automatic and faster expansion of these price bands whenever strong investor demand emerges, reducing the need for manual intervention by exchanges. 

SEBI also wants a complete rethink of how starting prices are determined for re-listed companies. Instead of relying on outdated or artificially low reference prices — often as low as face value — exchanges may now be required to use recent market prices or independent valuation reports to arrive at a more realistic benchmark. 

The move comes amid concerns that distorted opening prices were leading to continuous upper circuits, excessive volatility and surveillance actions immediately after listing.

SEBI has also proposed minimum participation thresholds from unique buyers and sellers before an opening price can be considered valid, in a bid to strengthen confidence in the price discovery process.

ALSO READ | SEBI Moves To Speed Up Institutional Trade Processing, Cut Infrastructure Risks

Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.