Securities and Exchange Board of India has proposed significant changes to the price discovery mechanism used during pre-open call auction sessions for initial public offerings (IPOs) and re-listed companies, aiming to make opening prices more reflective of actual market demand.
In a consultation paper released on Thursday, the market regulator said it has received representations highlighting concerns that the existing framework, particularly the use of dummy price bands and current base price rules for re-listed stocks, may be distorting price discovery.
SEBI noted that the current system can artificially suppress initial trading prices, which often leads to intense buying pressure once regular trading begins. In several cases, this has resulted in stocks repeatedly hitting upper circuit limits and being placed under market surveillance restrictions.
A key part of the proposal focuses on how base prices are determined for re-listed companies.
Under the current mechanism, if trading in a company’s shares resumes after being suspended for more than a year, the base price may default to as low as Rs 10, since it is linked to the lower of the company’s face value or older book value.
SEBI has proposed replacing this with a more market-linked valuation approach.
Under the proposed framework, if a company’s trading suspension is revoked within six months, the most recent closing market price on the stock exchange would be used as the base price.
If the suspension period exceeds six months, or if historical market prices are unavailable, the base price would instead be determined through fresh valuation certificates issued within the previous three months by two independent chartered accountants or valuation agencies.
The regulator has also proposed changes to how dummy price bands operate during pre-open sessions.
At present, price band adjustments are not allowed during the final minutes before the system-triggered random market closure. SEBI now wants automated 10 percent price band extensions to continue functioning dynamically even during this period, reducing the chances of trading bottlenecks or system freezes.
To strengthen the credibility of price discovery, SEBI has also proposed that a call auction session should be considered successful only if there are orders from at least five unique PAN-verified buyers and five unique PAN-verified sellers, ensuring a minimum level of genuine market participation.
The regulator has invited comments from market participants and the public on the proposed changes until June 11.
