Amid concerns over inefficient price discovery in newly listed and re-listed stocks, Securities and Exchange Board of India (sebi) has proposed changes to the pre-open call auction mechanism used on the first day of trading. The regulator said the current framework, particularly the dummy price band and base price methodology for re-listed shares, may be resulting in “artificially suppressed price discovery,” often followed by sharp rallies, repeated upper circuits and additional surveillance measures.

In a consultation paper issued on May 21, Sebi proposed revising the base price calculation for re-listed scrips, introducing a more dynamic auto-flexing mechanism for dummy price bands and tightening norms for successful price discovery through minimum participation requirements. The proposed changes would apply to IPOs, SME IPOs and re-listed shares. Sebi has sought public comments on the proposals until June 11, 2026.

1. What has Sebi proposed?

Sebi has proposed changes to the price discovery mechanism used during the pre-open call auction session for IPOs and re-listed stocks. The regulator seeks public comments on revising the base price calculation, dummy price bands and the overall call auction framework.

“The objective of this consultation paper is to seek public comments on the proposals to review the price discovery mechanism through pre-open call auction session for IPO and re-listed scrips on the date of their listing or re-listing,” it said.

The changes are aimed at making price discovery more efficient and reducing situations where stocks hit repeated upper circuits immediately after listing or re-listing.

2. Why does Sebi believe the current system needs a review?

According to Sebi, representations from market participants highlighted that the existing dummy price band and base price mechanism were leading to “artificially suppressed price discovery.”

The regulator observed that in one of the instance, 90% of the buy orders were rejected because they were placed outside the permitted dummy price band during the call auction session.

This often resulted in heavy buying pressure once normal trading began, causing stocks to hit continuous upper circuits and enter additional surveillance measures.

In case of SME IPOs, while there is no price band during the call auction session, exchanges have introduced a ±90% price band without any flexing mechanism, in view of the high volatility observed in SME-listed stocks.

3. What is the issue with the current base price mechanism for re-listed stocks?

Currently, if a stock resumes trading after being suspended for more than one year, the base price is determined using either the company’s book value or face value, whichever is lower.

Sebi said this frequently results in the base price being fixed around ₹10, which may not reflect the company’s actual market value. As a result, the opening price discovery process may remain artificially low despite strong investor demand.

To address this, Sebi has proposed that exchanges use valuation certificates from two independent chartered accountants or valuation agencies to determine a more realistic base price.

4. What changes have been proposed for dummy price bands?

The regulator has proposed retaining dummy price bands as a risk management tool but making the flexing mechanism more dynamic and uniform across exchanges.

Under the proposal, dummy price bands would automatically expand by 10% whenever the indicative equilibrium price comes within 10% of the upper or lower limit.

Sebi has also proposed that if orders exist only at the upper or lower band, exchanges should auto-flex the price band after validating orders from at least five PAN-based unique investors.

Importantly, the flexing mechanism would continue even during the random closure period between 9:35 am and 9:45 am, unlike the current system where no flexing takes place during that window.

5. What changes are proposed for successful price discovery?

Sebi has proposed that a call auction session should be considered successful only if price discovery is based on orders from at least five PAN-based unique buyers and five unique sellers.

If price discovery fails on the first day for a re-listed stock or a stock undergoing corporate restructuring, the call auction session would continue on subsequent trading days until a valid equilibrium price is discovered.

For IPOs, however, if no price discovery takes place, the stock would move to normal trading at the issue price as the base price.