New Delhi: After banning several brokers from trading in shares on their debut on the bourses, market regulator Sebi plans to fix a first-day price band for stocks listing after initial public offers to check any irregular movements in the scrips.
“It would be a higher filter, not a normal filter, to enable price discovery... we believe on day one, we need price filter,” said, Sebi Chairman M Damodaran.
However, it should not affect the effective price discovery mechanism, he added.
Sebi is collecting evidence of excessive price variation on the first day of trading, based on which it will decide whether to impose such filters on new listings.
Earlier this month, Sebi had issued a draft guideline inviting public comments on imposition of circuit filters on the first day of re-listing of shares.
“Until now there has not been artificial barriers, no filters, no circuit breakers at this level because we said let market discover the price,” Damodaran said about the price movements in newly-listed shares.
The regulator last week banned seven brokerages from debut trading in newly-listed shares for their alleged role in huge price movements recorded in stocks like Cambridge Technology, Mindtree and Pyramid Saimira Theatre on their first day of trading.
Some of these stocks witnessed unprecedented jump in their share prices immediately after the listing. Damodaran said there were instances when share prices of certain companies more than doubled from the issue price on the first day of listing after the public offer.
Recently, there was significant price rise on the first day of trading in certain securities such as Ahluwalia Contracts, where recommencement in trading saw scrip rise to Rs 611.90 compared with listing price of Rs 101.50. The scrip had finally closed at Rs 577.80 on the first day.
Currently, stock exchanges do not apply price bands or circuit filters on the day of IPO listing, re-commencement of trading in cases of demerger, amalgamation, capital reduction, scheme of arrangement, restructuring as well as in cases if the scrip is already listed on some other stock exchange.
Market regulator had proposed a price band of 20 per cent to be applied by exchanges for all cases of re-starting of trading other than IPOs.
However, the regulator had said the price band or circuit filter would apply to ”all cases of merger, amalgamation, capital induction, scheme of arrangements and revocation of suspension.”
The indicative price of equity following any scheme of arrangement would be fixed by a Sebi-registered merchant banker, it had said in a circular recently.