SEBI Proposes Changes To IPO, Re-Listed Share Price Discovery Framework; Tweaks Dummy Price Band Rules

SEBI has proposed changes to the first-day price discovery framework for re-listed shares and certain corporate restructuring cases, including a revised base price methodology to replace the existing approach that relies on book value in some situations.

It has also proposed changes to the dummy price band mechanism and suggested continuing call auction sessions beyond the first trading day where no price is discovered.

In a consultation paper issued on Thursday, SEBI said it had received representations that the existing base price determination methodology and dummy price band mechanism for relisted scrips were resulting in “artificially suppressed price discovery”.

It also noted an instance where buy orders during the call auction session of a re-listed scrip were rejected for falling outside the prescribed price bands.

At present, where revocation of suspension takes place more than one year after suspension, the base price for re-listed scrips is linked to book value or face value, whichever is lower.

SEBI has proposed replacing this with a methodology that would use recent market prices where available, the lower of book value or net worth in some cases, or independent valuation certificates where necessary.

The regulator has also proposed retaining the dummy price band mechanism for IPOs, including SME IPOs, and re-listed scrips. It has suggested allowing stock exchanges to automatically expand the dummy price band by 10% when the indicative equilibrium price reaches specified thresholds, to facilitate efficient price discovery.

SEBI has also proposed a one-time immediate manual expansion of the dummy price band by 10% where buy orders are present only at the upper range or sell orders only at the lower range.

This would be subject to validation of orders from at least five unique PAN-based investors.

Further, where price discovery fails on the first day in cases of re-listing or corporate restructuring, the call auction session would continue on subsequent trading days until a price is discovered.

If price discovery fails on the first day of an IPO, however, the scrip would continue to move to the normal market at the issue price, as is the current practice.