SEBI issues circular on formulation of price bands on listing day

Capital markets regulator SEBI, in its latest circular, on the formulation of price bands for the first day of trading after the initial public offering (IPO), re-listing, etc., in the normal trading sessions, has said call auction sessions will continue to be conducted separately on individual exchanges. After discussion with stock exchanges and Secondary Market Advisory Committee, SEBI has said orders will be matched by respective exchanges after the computation of the equilibrium price.

SEBI said if the difference in the equilibrium price between exchanges in percentage terms (i.e. absolute difference or a minimum of equilibrium prices, expressed as %) is more than the applicable price band for the scrip, a common equilibrium price (CEP) will be computed by exchanges.

The CEP will be a volume-weighted average of equilibrium prices on individual exchanges as determined by the call auction. The exchanges will set the aforesaid CEP in their trading systems and apply uniform price bands based on the CEP.

Also, says SEBI circular, only unexecuted pending orders from call auction sessions within the aforesaid price band will be carried forward to the normal market segment. The provisions of this circular will come into effect after 60 days from the date of issuance.

According to SEBI, stock exchanges must take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations.

They also need to bring the provisions of this circular to the notice of their members, and also disseminate the same on their websites. SEBI has also asked the stock exchanges to communicate the status of the implementation of the provisions of this circular in the monthly development report.

Notably, SEBI on January 20, 2012, had prescribed parameters regarding price discovery through call auction and applicable price band for the first day of trading pursuant to the IPO or the recommencement of trading for re-listed scrips in the normal trading session.

SEBI has said that as these call auction sessions are conducted on multiple stock exchanges, the discovered price or 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 SEBI.

SEBI in another circular issued on Monday had formulated a direct plan for schemes of Alternative Investment Funds (AIFs) and trail model for distribution commission in AIFs.

The regulator said this direct plan will bring transparency to expenses and curb misselling. Such a direct plan will not entail any distribution fee or placement fee. “AIFs shall ensure that investors who approach the AIF through a SEBI-registered intermediary, which is separately charging the investor any fee (such as advisory fee or portfolio management fee), are on-boarded via direct plan only.”

Also, AIFs will disclose the distribution fees or placement fees, if any, at the time of onboarding.