SEBI proposes uniform pricing mechanism for illiquid stocks across exchanges
Mumbai, June 11
India's market regulator, the Securities and Exchange Board of India, on Thursday proposed a new mechanism to prevent the same stock from trading at significantly different prices across exchanges.
The move is aimed at improving price discovery and liquidity, particularly in thinly traded shares.
In a consultation paper, SEBI said that when a stock does not trade on one exchange but remains active on another, the inactive exchange should use the active exchange's closing price to determine the next day's pre-open base price and price band.
"The previous day closing price of the scrip is taken as the base price for the pre-open session of a scrip and the price bands as discussed above are applicable on the said base price," the regulator said.
Currently, exchanges calculate circuit limits independently based on their own previous closing prices.
In illiquid stocks, this can lead to prolonged periods of non-trading on one exchange, freezing prices and circuit limits even as the stock continues to move on another platform.
The resulting divergence can create two different market prices for the same security and restrict trading.
SEBI said the proposal is intended to eliminate such anomalies and ensure uniform price bands for stocks listed on multiple exchanges.
The regulator has also suggested that if a stock trades on more than one exchange but remains inactive on one of them, the inactive exchange should adopt the closing price from the exchange with the highest trading volume.
To implement this system, exchanges would need to establish arrangements for sharing closing-price data.
The proposed changes are expected to mainly affect illiquid and small-cap stocks that do not trade regularly across all exchanges, while actively traded securities are likely to see little impact.
SEBI said the initiative is part of its broader effort to strengthen market infrastructure by improving price discovery and reducing structural inefficiencies that can hamper trading.
Public comments on the consultation paper have been invited until July 2. If adopted, the changes could make trading in illiquid stocks more seamless for investors while reducing artificial price gaps and execution hurdles across exchanges.
— IANS
Reader Comments
As someone who trades in small-caps regularly, I appreciate this. But I hope the implementation doesn't create new problems. What if the exchange with the highest volume itself has manipulated prices? Need robust checks and balances. Hope the public comments lead to refinements before rollout.
A sensible proposal. In India, we have multiple exchanges but the same stock shouldn't behave differently on each. SEBI is right to ensure uniform price bands. It will especially help illiquid stocks where price discovery is poor. However, let's see how smaller exchanges handle the data-sharing requirements.
This is a much-needed reform. I've noticed that some stocks get stuck on one exchange with outdated circuit limits while the other exchange keeps moving. It creates confusion and arbitrage opportunities for big players. SEBI's move will protect small investors who don't have access to such info. 👍
Good initiative but I worry about the operational complexity. Which exchange's price will be considered the "active" one? If a stock trades on both but volume is low on both, this might not solve much. Need clear criteria. Also, will this increase compliance costs for smaller exchanges? Let's wait and see.
Finally! I've been frustrated trying to sell a stock on BSE that's frozen at ₹50 while it's trading at ₹45 on NSE. This proposal will eliminate such anomalies. It's about time SEBI harmonized price discovery across exchanges. Hope they fast-track this after the consultation period.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.