SEBI Update: Formulation of price bands for the first day of trading pursuant to Initial Public Offering (IPO), re-listing etc. in normal trading session.

SEBI vide its Circular dated 11^th April, 2023 issued a Circular for All Stock Exchanges.

The Circular states:

SEBI announced the new framework for fixing the price band for trading in share market on the first day of listing after an IPO. The framework aims to streamline price band discovery on the secondary market. The decision has been taken after discussions with stock exchanges and the Secondary Market Advisory Committee (SMAC).

Several stock exchanges hold call auction sessions when a stock is about to trade for the first time following its IPO. It’s possible that the equilibrium price or found price following such call auction sessions will vary depending on the exchange. If the gap between these discovered prices is wide, price bands on different exchanges could be widely off from one another, giving investors a false impression of the price band.

The following has been decided for trading on the first day pursuant to IPO or re-listing (including re-listing on account of the scheme of the arrangement but excluding scrips for which derivative contracts are available):

• Call Auction sessions would continue to be conducted separately on individual exchanges and orders would be matched by respective exchanges after computation of equilibrium price.
• If the difference in the equilibrium price between exchanges in percentage terms (i.e. absolute difference/minimum of equilibrium prices, expressed as %) is more than the applicable price band for the scrip, a Common Equilibrium Price (CEP) would be computed by exchanges. The CEP shall be volume weighted average of equilibrium prices on individual exchanges as determined by the Call Auction.
• The exchanges shall set the aforesaid CEP in their trading systems and apply uniform price bands based on the CEP, as applicable.
• Only unexecuted pending orders from Call Auction session within the aforesaid price band shall be carried forward to the normal market segment. 

This circular shall come into force with effect after 60 days on 10^th June, 2023.

Link of the circular: https://www.sebi.gov.in/legal/circulars/apr-2023/formulation-of-price-bands-for-the-first-day-of-trading-pursuant-to-initial-public-offering-ipo-re-listing-etc-in-normal-trading-session_70019.html