In a move to check wild swings in the share prices of newly listed small-cap companies, the Securities and Exchange Board of India is considering a price band (circuit filter) for the first couple of days after listing.
According to sources, the market regulator proposes to call a meeting of the stock exchanges to discuss the various options available to curb the volatile price movements witnessed in issues of smaller market cap companies.
The regulator may also put variable price bands for the stock movement for two to three days before it gets listed at a final price.
This will help in better price discovery since the price band could be 50 per cent on the first day followed by 30 per cent in the second day and then 20 per cent thereafter. A 50 per cent price band means the stock could move up or down within 50 per cent of the issue price.
To start with, the price band could be applicable for companies with issue sizes of Rs 200-250 crore (Rs 2-2.5 billion).
The plan is to increase it to Rs 500 crore (Rs 5 billion) at a later stage.
While the proposal has been in the works for some time, the volatile price movements witnessed in the case of a few new listings have acted as an immediate trigger.
A circuit filter is a daily price band imposed by the exchanges on the price movement of listed securities. There is no circuit filter on the first day of listing, which is a price discovery day, and the prices of the securities can move freely without any limits.
Last year, abnormal price rallies up to 900-1000 per cent of the issue price were observed in shares of certain companies which got delisted from regional stock exchanges to relist on national level exchanges.
The market regulators had also observed that certain entities placed abnormally large share at prices at prices far below the prevailing market rates on the opening day.
The regulator had imposed circuit filter on the first day of relisting of the shares, the Securities and Exchange Board of India (Sebi) may now put a circuit filter for new listing after initial public offers.
