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SEBI mulls price band on IPO listing day

MUMBAI: The Securities and Exchange Board of India on Thursday proposed on Thursday to impose a price band of 25 per cent on the issue price on the day of listing of Initial Public Offerings (IPOs) of issue size up to Rs. 250 crore. This proposal does not apply in case of re-commencement of trading of equity shares of a company on the stock exchanges.

Recently, SEBI stated, it has been noticed that there are significant price and volume spikes and volatility on the day of listing of IPOs. This was particularly noticed in IPOs of the issue size up to Rs. 250 crore. In particular, for several such IPOs, where the stock available for trading in the hands of public, after excluding shares of promoters and others that face a lock in period is about 25-30 per cent of the equity capital of the company, the price may not sustain on subsequent days leading long-term investors to become dissatisfied with the dramatic activity on the day of listing.

The matter has been deliberated at length in the meetings held with the stock exchanges by SEBI. A back testing was carried out by the stock exchanges on the IPOs during the past year, using parameters such as the issue size, price variation on the day of listing, maximum variation on the day of listing as well as price variation on subsequent days. It was noticed that IPOs of issue size up to Rs. 250 crore exhibited more volatility than IPOs of greater issue size. “After taking into account the views of the stock exchanges and the results of back testing, it was felt that there is a need to impose price bands on the day of listing of IPOs in a cautious and gradual manner to facilitate steady and sustained price discovery over a period of time,”SEBI added. SEBI also invited comments and suggestions from the public on this proposal, so as to reach SEBI by January 31.

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