Market regulator Sebi on Thursday proposed significant changes to the price discovery mechanism through call auction sessions for IPOs and re-listed stocks, seeking to improve price discovery and address concerns around artificially suppressed pricing. According to reports from PTI, the regulator has released a consultation paper outlining these comprehensive reforms aimed at enhancing market transparency. The proposals were discussed with the Secondary Market Advisory Committee in November 2025, which recommended continuation of dummy price bands with improvements in the flexing mechanism and more realistic valuation methods for re-listed stocks.
Under the proposed changes, Sebi suggested revising the methodology used for determining the base price of re-listed stocks. For revocations taking place within six months of suspension, the latest closing price available within six months on the same exchange, or another exchange, would be considered for determining the base price. In cases where recent market prices are unavailable, the lower of valuations provided by two independent chartered accountants or valuation agencies would be used. For revocations taking place after six months of suspension, the base price should be determined solely through valuation certificates from two independent valuers that are not older than three months. The regulator noted that the existing system, particularly for re-listed companies suspended for over a year, often leads to unrealistically low base prices as the benchmark is generally the lower of book value or face value, subject to a minimum of Re 1 per share.
The regulator has proposed strengthening price discovery in the pre-open session by ensuring at least five distinct buyers and sellers participate in the one-hour window before regular trading. This enhanced participation requirement aims to improve price discovery and curb volatility on listing day. The changes specifically target the current system where current rules, especially for re-listed stocks, can lead to artificially low starting prices and large-scale rejection of buy orders due to price band limits. For IPOs, if no equilibrium price is discovered, the stock would move to the normal market at the issue price.
The regulator has also proposed continuing with the existing dummy price band mechanism but with a more uniform and automated flexing process across exchanges. According to the proposal, the dummy band would automatically expand by 10 per cent whenever the indicative equilibrium price comes within 10 per cent of either boundary. This automated approach aims to provide more consistent pricing across different exchanges and improve overall market efficiency. Additionally, if orders are present only at the upper or lower band, exchanges may automatically flex the range after validating orders from at least five PAN-based unique investors. The flexing mechanism should continue even during the random closure period between 9:35 am and 9:45 am, unlike the current system where no band expansion takes place during that window.
The proposals come after Sebi received representations highlighting that the current framework for re-listed scrips often results in "artificially suppressed price discovery," followed by continuous buying pressure in the normal market and repeated hits on upper circuit limits. According to ET Now, in one instance involving a re-listed stock, nearly 90 per cent of buy orders during the call auction session were rejected because they were outside the prescribed dummy price bands. The regulator has sought public comments till June 11 on the proposals, indicating the comprehensive nature of these reforms and their potential impact on market pricing mechanisms. The changes aim to improve price discovery and curb volatility on listing day by ensuring broader market participation and more realistic pricing mechanisms.
