SEBI Re-engineers Price Discovery: Major Changes Slated for IPO and Re-listed Scrips

SEBI Re-engineers Price Discovery: Major Changes Slated for IPO and Re-listed Scrips​

The Securities and Exchange Board of India (SEBI) has initiated a comprehensive review of the market mechanisms governing price discovery for Initial Public Offerings (IPOs) and re-listed scrips. The regulator released a detailed consultation paper on May 21, 2026, seeking public input on fundamental changes to the pre-open Call Auction Session.

The paper’s core objective is to refine how the equilibrium price is determined for newly listed and previously suspended securities. These changes are critical for ensuring market efficiency and preventing the artificial suppression of asset valuations.

Addressing Price Discovery Flaws in Listing Auctions​

SEBI’s review stems from market representations detailing shortcomings in the current process. Stakeholders have noted that the existing structure, particularly regarding the dummy price band and the base price determination for re-listed scrips, sometimes leads to artificially suppressed price discovery.

This suppressed pricing has resulted in persistent buying pressure in the normal market, causing scrips to continuously hit upper circuits and triggering Additional Surveillance Measures (ASM) across exchanges.

Specific areas drawing concern include the historical base price calculation for re-listed scrips, which has often defaulted to the lower of the book value or face value, potentially starting at only ₹10.

Proposed Overhaul of Base Price Calculation​

The regulator has proposed significant changes to the base price determination, aiming for a methodology that better reflects the current market value of the security.

For re-listed scrips, the proposed base price mechanism is now conditional on the duration since suspension. If the revocation is within six months, the base price defaults to the latest close price (not older than six months) from the respective exchange.

If the revocation occurred more than six months ago, the base price will be set as the lower of the book value, calculated via valuation certificates from two Independent Chartered Accountants or Valuation Agencies, ensuring the price reflects current valuation standards.

Strengthening Dummy Price Band Flexing Mechanism​

In response to calls for more dynamic and equitable pricing, the rules governing the dummy price band are being tightened. The proposal seeks to maintain the dummy price band as a risk mitigation measure for both IPO and re-listed scrips.

Crucially, the mechanism for flexing these bands must now be uniform across all stock exchanges and executed immediately upon triggering events.

The proposed rules mandate auto-flexing when the indicative equilibrium price reaches 10% below the upper range or 10% above the lower range. Furthermore, the flexing process will operate even during the critical random closure period (09:35 AM to 09:45 AM).

New Standards for Equilibrium Determination​

The consultation paper also reiterates and strengthens the prerequisites for a successful price discovery event. For a Call Auction Session to be deemed successful, the equilibrium price must be based on orders received from at least five unique buyers and sellers identified by Permanent Account Number (PAN).

This requirement ensures that the discovered price has genuine, broad market participation, enhancing the integrity of the opening price. Should the call auction fail to establish an equilibrium price, the process must continue on subsequent trading days until the price is successfully determined.

Next Steps and Public Comment Invitation​

SEBI structured these proposals based on internal deliberations and recommendations from the Secondary Market Advisory Committee (SMAC). The changes encompass detailed guidelines for the continuation of the existing base price practices for certain categories of scrips.

The public is invited to submit detailed comments and suggestions regarding these proposed changes. Feedback must be submitted by June 11, 2026. This mechanism aims to ensure that the updated framework for the Call Auction Session balances effective price discovery with robust market protections.