SEBI floats new rules to curb artificial price suppression in IPOs
Mumbai, May 23
Aiming to overhaul the price discovery mechanism for Initial Public Offerings and re-listed companies during their Pre-open Call Auction Sessions, the Securities and Exchange Board of India has released a consultation paper.
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.
SEBI said in its consultation paper that "representations have been received by SEBI stating that the dummy price band and the mechanism for base price in case of re-listed scrips are leading to situations of artificially suppressed price discovery".
This 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.
A primary focus of the consultation paper is the re-evaluation of the base price calculation for re-listed scrips.
Under the current system, if a company's trading suspension is revoked after more than a year, its base price often defaults to a meagre Rs 10 because it relies on the lower of the face value or older book value.
SEBI intends to substitute this with a more realistic, market-reflective approach.
The new proposal dictates that if a revocation occurs within six months of suspension, the latest closing price on the stock exchange will be used.
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.
Furthermore, SEBI proposes to introduce automation and relax restrictions regarding the flexible execution of dummy price bands. Currently, no adjustments to price bands are permitted within the final minutes leading up to a system-driven random market session closure.
The proposed changes will allow automated price band extensions of 10% to function dynamically even during this critical random closure window, preventing system freezes.
Additionally, to validate true market liquidity, a call auction session will only be deemed successful if it registers orders from at least five unique, PAN-verified buyers and sellers.
The public and market stakeholders have been invited to submit their comments on these structural changes by June 11, 2026.
— ANI
Reader Comments
I appreciate the move to require valuation certificates from independent CAs. Too much opacity in the current system where face value at Rs 10 was used even for fundamentally sound companies. This should bring more transparency to price discovery.
Good initiative but I'm a bit skeptical about the 5 unique PAN-verified buyers and sellers requirement. In a bull market it's fine, but what about volatile periods where genuine sellers are scarce? Could lead to failed auctions unfairly. Just my two paise! 🤔
SEBI is finally waking up! The dummy price band concept was a joke - it manipulated retail investors into thinking they were getting a bargain when actually the price was artificially deflated. I hope these rules are implemented quickly before the next big IPO wave.
The automated price band extension during random closure seems like a smart fix. I've seen system freezes causing chaos in the last 5 minutes of trading. But will the 10% extension be enough? Some stocks need more flexibility. Let's see what the public comments bring up.
Being a small investor who got burned when a re-listed stock I held was priced at Rs 10 face value while its actual book value was over Rs 50, this proposal is music to my ears. The current system was punishing shareholders with legitimate holdings.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.