In a consultation paper issued on Thursday, SEBI said the current pre-open call auction mechanism is leading to situations where genuine investor orders are getting rejected, resulting in artificially low opening prices in some stocks. The regulator added that this often causes heavy buying pressure after listing, with shares repeatedly hitting upper circuits in the normal trading session.
Moneycontrol had reported on August 20, 2025, that SEBI is weighing the overhaul of IPO and re-listing price discovery rules.
What is the key change?
Though the proposal covers the IPO stocks also but mainly focuses on re-listed companies whose trading resumes after a long suspension. SEBI has proposed a new system for deciding the base price of re-listed stocks. If the suspension revocation happens within six months, exchanges will first use the latest traded closing price on the same exchange. If that is unavailable, they may use the latest traded price from another exchange.
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If no recent traded price is available, the base price will be determined using valuation reports from two independent chartered accountants or valuation agencies. SEBI has proposed that exchanges may empanel approved valuers and prescribe standard valuation methods.
For companies re-listed after more than six months of suspension, the opening base price would be determined only through independent valuation reports.
Under the current system, if a company has remained suspended for more than one year, the opening base price is often determined using face value or old book value. In many cases, this results in stocks reopening at around Rs 10 even if the company’s actual value or book value is much higher. SEBI said this method does not reflect the present value of the company and may distort the price discovery process.
The case that led to the tweak
In the past, the re-listed shares of Swan Defence had faced such an issue, and despite the book value of ₹1,578.48 per share, the stock was listed at ₹35.99 on the BSE, which was automatically carried forward as the opening price on the NSE. The stock finally crossed the book value mark last year, around December.
What else will change?
Apart from the base price mechanism, SEBI has also proposed changes to the ‘dummy price band’ system used during the pre-open auction session. These temporary price ranges are designed to prevent erroneous orders and reduce market manipulation. At present, exchanges manually widen these price bands under certain conditions. However, SEBI noted that this process can delay price discovery and cause genuine orders to be rejected.
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Under the new proposal, the dummy price bands would automatically expand by 10% whenever the indicative equilibrium price approaches the upper or lower limit. The auto-flexing mechanism would also continue during the random closure period between 9:35 am and 9:45 am, which is currently not allowed.
Ensuring no manipulation
SEBI has also proposed that the price discovery process should be considered successful only if at least five unique PAN-based buyers and five unique PAN-based sellers participate in the auction. Currently, even a single matching order can determine the opening equilibrium price.
The regulator believes the new requirement will improve market integrity and reduce the chances of price manipulation in illiquid stocks.
SEBI paper noted, “Representations have been received by SEBI stating that the dummy price band and the mechanism for base price in case of a re-listed scrip are leading to situations of artificially suppressed price discovery. Subsequently, there is persistent buying pressure in the scrips in the normal market, leading to continuous hit of the upper circuits and Additional Surveillance Measures (ASM) as applicable in the respective exchanges”.
If price discovery fails for an IPO, the stock will continue to move to the normal market at the issue price, as per the current system. However, in the case of re-listed companies, the call auction session will continue on subsequent trading days until a valid opening price is discovered.
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SEBI has invited public comments on the proposals until June 11, 2026.
First Published: May 22, 2026 12:00 AM IST
