India's market regulator, the Securities and Exchange Board (SEBI), on Thursday published a consultation paper detailing proposed modifications to the price discovery process used when shares begin public trading. The document focuses on the pre-open call auction - the one-hour interval that precedes regular trading and is intended to establish each security's opening price.
SEBI signaled concern that the present framework, particularly as it applies to re-listed stocks, can produce artificially depressed opening levels. The regulator highlighted that existing rules may contribute to large-scale rejection of buy orders because of price band limits, a situation that can distort the opening price and reduce effective participation.
Among the reforms under consideration is a move toward a base price for re-listed securities that is more closely tied to observable market signals. The consultation paper outlines options that include using recent market prices or independent valuations as the basis for the opening-price calculation. SEBI explicitly refrained from proposing any change to the base price rule for initial public offerings - the IPO base would remain the original issue price.
Another element of the proposal aims to broaden engagement during the pre-open session. SEBI suggested that price discovery should involve a minimum of five distinct buyers and sellers to ensure that a wider set of participants influences the opening price. The regulator framed these steps as measures to enhance price discovery and to mitigate listing-day volatility.
The consultation paper is intended to solicit feedback before any change is finalized. SEBI's stated objectives are to reduce distortions at the start of trading for re-listed stocks and to lower the incidence of large order rejections tied to price band mechanisms, while maintaining the current IPO base pricing approach.