Bourses to set common price for stocks on listing day

Bourses to set common price for stocks on listing day

The Securities and Exchange Board of India (Sebi) has asked exchanges to work on a common equilibrium price (CEP) for the first day of trading in stocks following an IPO or a re-listing.

This is being done to remove any differential in price discovery at multiple exchanges.

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“As aforesaid call auction sessions are conducted on multiple stock exchanges, the discovered price/equilibrium price pursuant to such call auction sessions could be different on each exchange. If the difference in these discovered prices is significant, there could be a situation wherein price bands on individual exchanges are far apart from each other, giving an incorrect picture of price band to investors,” said the circular issued on Tuesday.

Call auctions will continue to take place on individual exchanges, and orders matched by the respective bourse following determination of the equilibrium price.

However, in the event of the differential being higher than the applicable price the bourses shall compute a CEP. This shall be calculated as the volume-weighted average of equilibrium prices determined by the individual exchanges.

Following the computation, the exchanges shall set the CEP in their trading systems and apply uniform price bands based on the price.

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Sample this: The equilibrium price determined by a bourse after a call auction is Rs 100 with a quantity of 300 shares, while that of another bourse is Rs 130 with a quantity of 500 shares. The applicable price band is 5% for the day.

With the percentage differential in equilibrium prices (30% in this case) being much beyond the permissible 5%, the CEP will be (Rs 30,000 + Rs 65,000)/800 (total shares), which works to Rs 118.75.

Further, only unexecuted pending orders from the call auction session, within the stated price band, shall be carried forward to the normal market segment, said the circular.

The new norms are set to take effect after 60 days, said the circular.