The Securities and Exchange Board of India (SEBI) has issued a consultation paper on 21 May 2026 proposing significant reforms to the IPO and re-listed stock price discovery mechanisms. According to reports from ANI, the regulator identified that the existing dummy price band and base price framework for re-listed shares had led to distorted price discovery in certain cases. SEBI noted that some stocks later witnessed repeated upper circuits and surveillance actions due to persistent buying pressure. The market regulator's proposal addresses growing concerns that current trading frameworks--specifically dummy price bands and base price setups--are distorting initial trading values.
The review was prompted by representations highlighting that the current dummy price band and base price mechanisms were resulting in artificially suppressed price discovery during the pre-open call auction session. As reported by ANI, SEBI observed that some re-listed stocks later faced continuous buying pressure and repeated upper circuits in the normal trading session. The regulator noted that in one instance, nearly 90% of buy orders were rejected for being outside the permitted price bands. The suppression has historically triggered immediate, persistent buying pressure in the normal trading market, causing affected shares to repeatedly hit upper circuits and enter restrictive surveillance measures.
SEBI has proposed revising the base price mechanism for re-listed shares with a more realistic, market-reflective approach. For stocks resuming trading after more than six months of suspension, the regulator proposed using the latest closing price on the stock exchange if revocation occurs within six months of suspension. If the suspension exceeds six months or if historical prices are unavailable, the base price will be determined using fresh valuation certificates not older than three months issued by two independent chartered accountants or valuation agencies. According to the consultation paper, SEBI also proposed automatic flexing of dummy price bands by 10% when equilibrium prices approach upper or lower operating limits, with the proposed changes allowing automated price band extensions of 10 per cent to function dynamically even during critical random closure windows. The regulator has further proposed extending the flexing mechanism to SME IPOs to ensure broader market coverage.
SEBI has proposed that price discovery in the call auction session should be treated as successful only if based on orders from at least five PAN-based unique buyers and sellers. As reported by ANI, if price discovery fails on the first day for re-listed shares, the call auction process would continue on subsequent trading days until a valid equilibrium price is discovered. For re-listed shares suspended for more than one year, the base price often starts at face value or book value, which in many cases is around ₹10, leading to unrealistic price discovery. The new proposal aims to validate true market liquidity by requiring orders from at least five unique, PAN-verified buyers and sellers to ensure genuine market participation.
SEBI has invited public comments on the proposals till 11 June 2026. According to ANI, these structural changes aim to prevent artificial price suppression and ensure fair market practices for both IPOs and re-listed stocks in the Indian capital markets. The consultation paper represents a comprehensive overhaul of the price discovery mechanism during pre-open call auction sessions, addressing long-standing concerns about artificially suppressed trading values and ensuring more realistic pricing for market participants.
