SEBI introduces `Common Equilibrium Price` for IPO listing day

The Securities and Exchange Board of India (SEBI) on Tuesday (11 April) introduced a new method to determine the listing price of Initial Public Offerings (IPOs). Under this new regulation, the volume-weighted average price (VWAP) across both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) will be used to determine the common equilibrium price (CEP) of the stock on the day of listing.

This regulation will only apply if two conditions are met. Firstly, the difference in the equilibrium price between the exchanges in percentage terms must be more than the applicable price band for the scrip. Secondly, the pre-open session must be conducted on multiple stock exchanges. If these conditions are met, the VWAP of both pre-open prices will be calculated to determine the CEP.

Currently, the price discovery for shares happens through a call auction process. "Call auction session would continue to be conducted separately on individual exchanges and orders would be matched by respective exchanges after computation of equilibrium price," said Sebi in a statement.

The new regulation has been introduced to tackle the issue of different listing prices on different exchanges. Without the CEP regulation, the listing price on NSE and BSE could differ by a significant percentage, leading to complications such as a significant price difference between the exchanges.

However, this regulation will not apply to Small and Medium Enterprises (SME) IPO listings as they occur only on one exchange. The new regulation is expected to streamline the IPO listing process and reduce discrepancies in listing prices between exchanges.

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