Market regulator (SEBI) has made it tough for stock market operators to make stellar gains on the listing day of a share. The Securities and Exchange Board of India (SEBI) has imposed price bands for shares making their debut on the stock exchanges in its attempts to curb in initial public offerings (IPOs).
The regulator has decided to include IPOs in the pre-opening session on the stock exchanges. The normal trading session for stocks making their debut will start only after the conclusion of a one hour call auction session from 9.00 am to 10.00 am. A pre-call auction is a process of determining a stock’s opening price.
The move is also a fallout of the recent investigation by the market regulator, where it found evidences of manipulation in some of the recent IPOs.
Most of the volatility happens on the first day aimed at trapping retail investors or traders. The first day sees volume of over 10 times of the total shares offered in most cases, giving a clear indication of artificial trading and price manipulation.
For IPO size up to Rs 250 crore, the price band in the normal trading session will be 5% of the equilibrium price that is discovered in the call auction. For an issue size of more than Rs 250 crore, the price band will be 20%.
However, if the equilibrium price is not discovered in the call auction, the price band in the normal trading session will be 5% and 20% of the issue price respectively.
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