SEBI WEIGHS OVERHAUL OF IPO AND RE-LISTING PRICE DISCOVERY RULES

The Securities and Exchange Board of India has begun initial talks with stock exchanges and other market participants to review the framework for price discovery in IPOs and re-listed shares after concerns were raised over price discovery of Swan Defence’s re-listing earlier this year.

At the centre of the debate is the use of dummy price bands during special pre-open sessions, which some investors say undermines fairness. Sebi’s focus, according to people familiar with the matter, is to assess whether structural changes are needed to make the process more transparent, efficient and capable of restoring confidence, especially in cases of re-listed securities emerging from insolvency.

People familiar with the matter told Monecontrol that the regulator has begun consultations with stock exchanges, brokers and other market participants to decide if the current mechanism needs a structural change. Sebi’s focus is to ensure that price discovery in re-listed securities, including those emerging from insolvency resolution, is transparent, efficient and capable of restoring investor confidence.

Details of the Proposal 

Among the issues under discussion are - whether the dummy price band system should be redesigned to allow greater participation in the special pre-open session (SPOS), if the current manual coordination between exchanges for flexing price bands should be replaced with an automated mechanism, and whether the rule that prevents any relaxation after 9:35 am should be reconsidered. Another key question is whether the base price for re-listed shares should continue to be linked to the lower of book value and face value, or reflect a more accurate measure of present value.

The dispute began after Swan Defence’s shares were re-listed on the BSE and NSE following approval of its resolution plan. During the special pre-open session (SPOS), the exchanges imposed what was described as a dynamic or dummy price band of minus 85 percent to plus 50 percent on the stock. Within this range, the price discovery process led to an equilibrium price of Rs 35.99 on the BSE, which was automatically carried forward as the opening price on the NSE.

According to notes seen by Moneycontrol, the company strongly objected to this outcome, pointing out that the discovered price was far below its book value of Rs 1,578.48 per share as per March 2024 financials, stating that this eroded shareholder wealth and damaged investor confidence.

In its representation to the regulator, Swan Defence argued that imposing dummy price bands violated Sebi’s January 2012 circular, which clearly specifies that no price bands should apply to re-listed securities during such sessions. The company claimed that this artificial suppression of price caused financial losses to shareholders, created challenges in meeting minimum public shareholding requirements and lowered the stock’s valuations far below its peers.

The company further requested the regulator and exchanges to “declare the trades executed on January 20, 2025, as null and void, owing to unforeseen and unjustified constraints imposed during the pre-open call auction.”

Team- Intellex Strategic Consulting Private Limited

Follow us on LinkedIn:

https://www.linkedin.com/company/intellexcfo-com/

https://www.linkedin.com/company/intellexconsulting

https://www.linkedin.com/company/venture-streets/

https://www.linkedin.com/company/growmoreloans-com/

www.startupstreets.com,  www.growmoreloans.com,  www.growmorefranchisees.com,  www.intellexcfo.com