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20 p.c. circuit filter on `de-merged shares' trading

Special Correspondent

To curtail large price movements on first day trading

MUMBAI: The Securities and Exchange Board of India (SEBI) on Tuesday proposed to introduce circuit filters to shares of companies on the first day after a de-merger, amalgamation, capital reduction, scheme of arrangement and restructuring.

The capital market regulator stated that it was planning to apply a 20 per cent limit (circuit filter) on such stocks. Circuit filters would be 5 per cent for stocks in the trade-to-trade segment.

A company undergoing any such change would have to obtain an indicative price from a merchant banker registered with SEBI before re-listing.

SEBI stated that the circuit filters were being proposed as large price movements had been observed in stocks on their first trading day after the restructuring. "Recently, it has been noticed that there are significant price spikes on the first day of commencement/ re-commencement of trading in certain securities. It is felt that in view of such large price rise on the first day of trading, it would be appropriate to apply price bands, circuit filters upon the commencement or re-commencement of trading for cases other than IPOs."

SEBI also stated that there should be sufficient advance notice to the market at large about the fixation of the base price or imposition of price band thereon, along with the detailed reasons for the company undertaking the exercise as well as details of the valuation undertaken by the merchant banker.

Comments and suggestions are invited on these proposals by SEBI and may be addressed to sanjayp@sebi.gov.in or rajendranb@sebi.gov.in before April 17.

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