Securities and Exchange Board of India (SEBI) in a consultation paper  proposed a sweeping reform in calculation of stock prices during IPO listings and re-listings. 

Current system of price discovery is artificially suppressing prices and triggering repeated upper circuits once trading begins, the market regulator said.

It proposed automatic and faster expansion of price bands whenever strong investor demand emerges, reducing the need for manual intervention by exchanges.

“The mechanism for flexing the dummy price bands should be uniform across exchanges and whenever required, the flexing of the price band shall be done immediately,” the statement said.

The exchanges shall flex the dummy price bands in multiples of 10 per cent, automatically based on pre-defined logic and/or in consultation with other Exchanges, it said.

The flexing mechanism should also operate during the random closure period from 09:35 am to 09:45 am.

The regulator found existing guardrails were rejecting a large number of genuine buy orders during the pre-open auction session, which prevented markets from arriving at a fair opening price.

SEBI cited an example where nearly 90 per cent of buy orders in a re-listed stock got rejected because bids fell outside exchange-imposed ranges. 

SEBI also proposed a complete overhaul of how starting prices are determined for re-listed companies by using recent market prices or independent valuation reports rather than relying on outdated or artificially low reference prices.

“Call Auction Session shall be treated as successful, if price discovery is based on orders from at least 5 PAN based unique buyers and sellers,” SEBI said.

Currently there is no price band for the Call Auction Session of SME IPOs but considering the volatility in SME listed prices the stock exchanges have put a price band of over 90 per cent without any flexing criteria.