Sebi tightens IPO listing norms to protect retail investors

Market regulator SEBI on Friday said that all scrips will have a circuit limit from the day of listing on exchanges based on a one-hour pre-open trade, a move aimed at protecting retail investors from artificial pricing of shares.

Under the existing norms, the circuit limit -- the daily price band for movement of a scrip -- was fixed on the second day based on previous day's closing price.

The move is in response to complaints against operators and brokers manipulating price by creating artificial demand of IPOs and subsequent dumping of shares, to the detriment of retail investors.

"In light of high volatility and price movement observed on the first day of trading, it has been decided to put in place a framework of trade controls for IPOs and re-listed scrips applicable to normal trading session...," SEBI said in a circular.

The normal trading would start after the pre-open session of call auction on BSE and NSE, the regulator said. "The (pre-open) session shall be for a duration of 60 minutes i.e from 9 am to 10 am...," it said.

Earlier, pre-open session used to form part of the scrips of Sensex and Nifty companies.

"SEBI's move will help in bringing transparency and ensuring effective price discovery mechanism of an IPO," SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.

In the pre-auction trade, for issues less than Rs 250 crore the margin money of 100 per cent of the order value would have to be paid for placing bids.

"This move will help avoid fake bids and ensure that only real demand is created," Thunuguntla said.

As per the circular, issue size up to Rs 250 crore, the applicable price bands for the first day would be 5 per cent of the equilibrium price discovered during the pre-open session and for IPOs above Rs 250 crore it will be 20 per cent.

In case equilibrium price is not discovered during the call auction, the price band would be fixed on the issue price at the above percentage.