Finance – SEBI Proposes New Framework for Fairer IPO Price Discovery
Finance – India’s capital market regulator has proposed a fresh set of measures aimed at improving the way share prices are determined during the early trading phase of initial public offerings and relisted companies. The move is part of a broader effort to strengthen transparency and reduce unusual price movements during pre-open trading sessions.
SEBI Flags Concerns Over Existing Trading Structure
The Securities and Exchange Board of India (SEBI) on Thursday released a consultation paper outlining changes to the current price discovery process used during Pre-open Call Auction Sessions. According to the regulator, several market participants had raised concerns that the existing system was creating distorted opening prices for newly listed and re-listed shares.
SEBI noted that the current mechanism, which relies on dummy price bands and outdated base price calculations, has in many cases resulted in artificially low trading values. This has often triggered excessive buying activity immediately after trading begins, pushing stocks into repeated upper circuit limits and surveillance restrictions.
Fresh Method Proposed for Re-Listed Companies
One of the key proposals focuses on companies returning to trading after a prolonged suspension. Under the present framework, if trading resumes after more than one year, the stock’s base price is usually fixed at Rs 10 or another minimal figure linked to old book value data.
The regulator believes this approach no longer reflects realistic market conditions. To address the issue, SEBI has suggested a revised method for determining opening prices.
Under the proposed framework, if trading is restored within six months of suspension, the latest closing market price available on the exchange would be used as the base value. However, in situations where the suspension lasts beyond six months or historical price data is unavailable, companies would need updated valuation reports.
These valuations must be issued within the previous three months by two separate independent chartered accountants or recognised valuation agencies. SEBI believes this will provide a more accurate assessment of a company’s market worth before trading resumes.
Automated Price Band Changes Also Suggested
The consultation paper also recommends improvements to the handling of dummy price bands during the auction session. At present, exchanges are restricted from modifying price bands during the final moments before the random market closure process begins.
SEBI has proposed allowing automated 10 per cent price band extensions to continue operating dynamically even during this sensitive period. The regulator said this could help avoid system disruptions and prevent trading freezes caused by sudden order imbalances.
Market experts believe this adjustment may improve trading efficiency and help establish more balanced opening prices for stocks entering the market.
Focus on Genuine Market Participation
In another important proposal, SEBI has recommended stricter participation standards for validating auction sessions. According to the draft framework, a call auction would be considered successful only if at least five unique buyers and five unique sellers participate using PAN-verified accounts.
The regulator said this measure is intended to ensure genuine liquidity and reduce the possibility of artificial market activity during the opening trade process.
Public Feedback Invited Until June 11
SEBI has invited stock exchanges, investors, brokers, and other stakeholders to submit their views on the proposed reforms. Public comments on the consultation paper can be submitted until June 11.
The proposed changes are expected to play a significant role in improving confidence in India’s primary market structure, especially at a time when IPO activity continues to remain strong across multiple sectors.