The Securities and Exchange Board of India (SEBI) has proposed a comprehensive framework for price discovery in IPOs and re-listed stocks, introducing revised base price calculations and enhanced auction criteria. According to reports from The Hindu BusinessLine and Reuters, for re-listed shares where trading resumes within six months of suspension, SEBI proposes using the latest closing price within the previous six months as the base price. For stocks returning after more than six months of suspension, exchanges will directly use the lower valuation certified by two independent valuers as the base price. The regulator has also proposed a complete rethink of how starting prices are determined for re-listed companies, moving away from outdated reference prices often as low as face value to use recent market prices or independent valuation reports to arrive at more realistic benchmarks. Under the current system, if a company has remained suspended for more than one year, the opening base price is often determined using face value or old book value, resulting in stocks reopening at around ₹10 even if the company's actual value is much higher. This method does not reflect the present value of the company and may distort the price discovery process.
SEBI has proposed continuing the existing dummy price band mechanism for IPOs, SME IPOs and re-listed stocks, but with significant improvements. As reported by The Hindu BusinessLine and Reuters, exchanges will implement automatic and immediate flexing of bands by 10 per cent when equilibrium prices near the upper or lower range. Exchanges will also continue widening bands during the random closure period between 9:35 am and 9:45 am, and can widen price bands when orders exist only on one side of the market after validating from at least five PAN-based unique investors. 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. Under the new proposal, the dummy price bands would automatically expand by 10 per cent whenever the indicative equilibrium price approaches the upper or lower limit, with the auto-flexing mechanism continuing during the random closure period between 9:35 am and 9:45 am, which is currently not allowed. The current framework allows IPO stocks to operate within a dummy price range of minus 50% to plus 100% of the base price during the pre-open session, while relisted stocks use a range of minus 85% to plus 50%.
The regulator has proposed that a call auction session will qualify as successful only if at least five unique buyers and five unique sellers participate in price discovery. According to the consultation paper, if price discovery fails on the first day for a re-listed stock or a stock undergoing corporate restructuring, the call auction session will continue on subsequent trading days until a price is discovered. SEBI noted that the current mechanism was leading to "artificially suppressed price discovery," with instances where 90% of buy orders were rejected during re-listed stock call auction sessions. The regulator 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. Currently, even a single matching order can determine the opening equilibrium price, but SEBI believes the new requirement will improve market integrity and reduce the chances of price manipulation in illiquid stocks.
SEBI received representations that the current mechanism was creating persistent buying pressure after listing, leading to repeated upper circuits. As reported by The Hindu BusinessLine and Reuters, the existing dummy price band and base price mechanism were contributing to these market distortions. The regulator has sought public comments on the proposals until June 11, 2026, including whether the revised dummy price band mechanism should also apply to SME IPOs. The move comes amid concerns that distorted opening prices were leading to continuous upper circuits, excessive volatility and surveillance actions immediately after listing. In the past, re-listed shares of Swan Defence faced such issues, with the stock listed at ₹35.99 on BSE despite having a book value of ₹1,578.48 per share, which was automatically carried forward as the opening price on NSE. The stock finally crossed the book value mark last year around December. The changes aim to improve price discovery and curb volatility on listing day.
