Sebi has proposed a comprehensive overhaul of IPO price discovery mechanisms after finding that the current system was artificially suppressing prices and triggering repeated upper circuits during trading. According to the latest consultation paper, the regulator discovered that existing guardrails used during pre-open auction sessions were rejecting a large number of genuine buy orders, preventing markets from finding fair opening prices. In one specific instance cited by Sebi, nearly 90% of buy orders in a re-listed stock were rejected because bids fell outside exchange-imposed ranges. The regulator has now proposed automatic and faster expansion of price bands whenever strong investor demand emerges, reducing the need for manual intervention by exchanges. Additionally, SEBI wants a complete rethink of how starting prices are determined for re-listed companies, with exchanges now required to use recent market prices or independent valuation reports to arrive at more realistic benchmarks, moving away from outdated or artificially low reference prices often as low as face value.
Market regulator Sebi has proposed a major overhaul of the existing Straight-Through Processing (STP) framework aimed at reducing costs and improving service delivery for market participants. According to reports from PTI, the regulator has released a consultation paper outlining the proposed changes to the current system structure. The proposal comes as STP enables automated end-to-end processing of financial transactions and is used for the exchange of various messages among market participants, including Electronic Contract Notes (ECNs). As per Sebi, the current framework requires messages between different STP Service Providers (SSPs) to be routed through a centralized STP Hub, which increases transmission time and costs because messages between different SSPs have to pass through the hub. The regulator clarified that the proposed changes would not require brokers, custodians, institutional investors or other STP users to make major system-level modifications.
Under the proposed framework, Sebi seeks to replace the current centralised hub-based structure with a decentralised Application Programming Interface (API)-based model. As reported by PTI, the new structure would eliminate the current STP Centralised Hub used for transferring messages between different STP Service Providers (SSPs), instead implementing direct API-based connectivity between SSPs. According to Sebi, this would facilitate seamless and secure exchange of messages and data without routing them through a centralised hub, enhancing scalability and cost-effectiveness of the STP framework while supporting transaction volumes of institutional trading. The move is expected to improve operational efficiency, enhance scalability and strengthen the resilience of the institutional trade-processing system while also reducing costs. Under the proposed mechanism, Electronic Contract Notes uploaded by brokers would move directly between service providers without passing through a centralized intermediary, resulting in fewer message exchanges and improved speed.
Sebi has proposed significant changes to the IPO price discovery process after representations indicated that the current dummy price band mechanism and base price methodology are leading to inefficient price discovery. The regulator has extended the flexing mechanism to SME IPOs where no such flexibility currently exists despite heightened volatility in the segment. Under the new framework, exchanges would be required to automatically widen price bands by 10% whenever the indicative equilibrium price approaches upper or lower thresholds. Additionally, if buy or sell orders accumulate only at extreme ends of the price band, exchanges may automatically widen the range after validating orders from at least five PAN-based unique investors. Currently, IPOs have a dummy price band of minus 50% to plus 100% from the base price, while SME IPOs are capped at plus or minus 90% without any flexing mechanism. The regulator has also proposed that a call auction session would be considered successful only if price discovery is based on orders from at least five unique PAN-based buyers and sellers.
Sebi has issued show-cause notices to six foreign portfolio investors (FPIs) linked to US-based asset manager Capital Group in connection with its ongoing front-running investigation. The entities that received notices are American Funds Insurance Series Growth-Income Fund, American Funds Fundamental Investors, Smallcap World Fund, The Growth Fund of America, AMCAP Fund and Capital Group AMCAP Fund (Lux). The proceedings stem from SEBI's interim order issued in 2025 against Singapore-based trader Rohit Salgaocar and Ketan Parekh, in which the regulator alleged that confidential information relating to trades by a "big client" was used for front-run trades in the market. Capital Group declined to comment due to the ongoing nature of the matter, while SEBI did not respond to queries until press time. The regulator alleged that Salgaocar, a director at Strait Crossing, received information relating to impending trades from two traders linked to Capital Group, and shared it further with a network of traders linked to market operator Ketan Parekh. Salgaocar has appealed against SEBI's interim order and is being heard before the Securities Appellate Tribunal (SAT), with SAT allowing his plea seeking cross-examination of Ketan Parekh.
According to the consultation paper, SSPs serving different STP users will be required to provide standardised API endpoints based on agreed protocols and data formats. As reported by PTI, this would allow secure and seamless exchange of messages without routing them through a centralised system. Additionally, Sebi has also proposed introducing an optional API-based message exchange facility for STP users serviced by the same SSP, in addition to the existing upload and download mechanism. To address Prevention of Money Laundering Act (PMLA) risks, SEBI proposed safeguards such as robust KYC checks for payer and beneficiary, mandatory electronic fund trails and routing redemption or dividend proceeds only to verified beneficiary accounts. The Industry Standard Forum of Market Infrastructure Institutions will prepare the standard operating procedure for SSPs and determine the operational modalities for the proposed framework in consultation with Sebi.
Sebi's analysis of STP traffic between April 1, 2025 and December 31, 2025 showed that 95-99 per cent of all STP messages were routed through a single SSP, creating significant concentration risk. As reported by PTI, because inter-SSP messages currently pass through a single entity -- the STP Hub -- the system is exposed to a potential single point of failure. The regulator noted that the cost and latency associated with routing messages through the hub may incentivise market participants to consolidate operations with one SSP, worsening concentration risk. At the same time, the negligible volume of traffic passing through the STP Hub suggests that it is no longer serving its intended purpose of enabling broad-based interoperability. The current structure introduces additional latency, increases operational costs and creates concentration risks in the market infrastructure ecosystem. The regulator warned that dependence on one dominant provider and a centralized hub structure could lead to a potential single point of failure in the system.
The regulator stated that the proposed changes would not require any modifications at the end-user level, including for stock brokers, fund houses and custodians. According to Sebi, the revised structure would likely encourage more SSPs to participate, thereby mitigating the concentration risk with single large SSP and improving value-added services by SSPs to STP users. These changes, if implemented, could enable automatic and faster expansion of price bands in case of high investor demand and reduces the need for stock exchange's manual intervention. For IPO listings, SEBI 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. The proposed framework aims to reduce delays, lower costs, and improve service delivery for market participants while maintaining operational ease for STP users. STP is the backend framework that enables the exchange of trade-related messages -- including electronic contract notes and settlement instructions -- among brokers, custodians and institutional investors, and is mandatory for institutional trades that are settled through custodians.
