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New norm
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Mumbai, Jan. 20: The Securities and Exchange Board of India (Sebi) today imposed price bands that will come into play on the day that the shares offered under an initial public offering (IPO) list on the markets in a move designed to curb volatility in prices as speculators flip their investments.
At present, there are no price controls on the day that an IPO lists and this had led to high volatility and price movement on the first day of trading.
The market regulator has often in the recent past said that it is in the process of reforming the IPO process as part of which there will be minimum volatility on the first day.
Last year, it came across various instances where stocks of new companies closed with huge gains on their first day of trading which evaporated in subsequent sessions.
In a circular today, Sebi said the normal trading session for an IPO and re-listed shares on their first day of trading would commence only after the conclusion of the call auction session for such a scrip on the BSE and NSE. The call auction will take place between 9 am and 9.15 am.
In a call auction mechanism, the price that enables the largest number of orders to be executed is chosen. This now happens ahead of the normal trading session.
The market regulator said in the case of issues with a size of under Rs 250 crore, in the event of equilibrium price being discovered in the call auction, the price band for these shares in the normal trading session shall be 5 per cent of the equilibrium price.
On the other hand, if equilibrium price is not discovered in the call auction, the price band in the normal trading session shall be 5 per cent of the issue price.
For issues over Rs 250 crore, if equilibrium price is discovered in the call auction, the price band in the normal trading session will be 20 per cent of the equilibrium price. Similarly, if the equilibrium price is not discovered in the call auction, the price band in the normal trading session will be 20 per cent of the issue price.
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