I have a piece with Manas Dhagat in the Financial Express of the 24th June 2026 which discusses discussing price discovery on exchanges. For long-suspended scrips re-listing on Indian exchanges, the call auction has for years produced opening prices that have little to do with value. A base price stuck at Rs. 10 and a narrow dummy band get genuine bids rejected, no equilibrium forms, and the scrip opens into a wall of upper circuits. SEBI's 21 May 2026 consultation paper proposes to fix this: base price tied to two independent valuations, dummy-band flexing made automatic and simultaneous across exchanges and extended through the random closure window, and at least five unique PAN-based buyers and sellers for a valid equilibrium. In our latest piece in the Financial Express, Manas Dhagat and I argue the reform gets the principle right. A price discovery mechanism should get out of the way while the market decides. Its success will turn on execution: the quality of the valuations and the latency of automated flexing. SEBI is not setting the price. It is finally letting the market do so.
The full piece is as below:
A market price is only as good as the interest that produces it. When regulatory design keeps part of the buying or selling interest out of the auction, the resulting price reflects the design, not the security. SEBI’s consultation paper of May 21, 2026 proposes to fix one such design, the call auction window for IPOs and re-listed scrips, which has for years produced opening prices that have very little to do with value.
When a new IPO lists, or a suspended scrip re-lists, a 60-minute Call Auction Session runs from 9:00 AM to 10:00 AM: 45 minutes for order entry, 10 minutes for matching and confirmation, and a 5-minute buffer before normal trading. The order entry phase closes randomly between the 35th and 45th minute, a design intended to deter manipulation.
During the session, there is formally no price band, and only limit orders are permitted. This requires participants to specify a price, which is intended to allow the market to find a genuine opening price. At the close of the session, unmatched orders in IPO scrips move to the normal trading session at their limit price. For re-listed scrips, if an equilibrium price is discovered, unmatched orders similarly move to normal trading. If no equilibrium is reached, all orders are cancelled and the scrip remains in call auction mode on subsequent trading days until a price is found.
Two constructs shape the session in practice. The first is the base price, the reference anchor. For IPOs it is the issue price. For re-listed scrips revoked within a year, it is the latest closing price on any exchange. For scrips suspended for over a year, it is the lower of the auditor-certified book value or face value, which usually leaves the base price at Rs. 10.
The second construct is the dummy price band, set by exchanges as a guard against erroneous orders. The dummy band ranges from -50% to +100% for IPO scrips, -85% to +50% for re-listed scrips, and ±90% for SME IPO scrips. Orders outside this band are rejected and cancelled. The band can be flexed by 10% increments when the indicative equilibrium price presses within 10% of either edge. However, no flexing occurs from one minute before the random closure window begins. Further, no flexing is applied to SME IPO scrips at all.
For long-suspended scrips, a low base price and a narrow dummy band produce a predictable failure. With a base price of Rs. 10, the upper band for a re-listed scrip is only Rs. 15. Any investor willing to bid closer to the company’s actual value has the order rejected. No equilibrium emerges. When the scrip then moves to normal trading, the suppressed opening price draws persistent buying pressure and a series of upper circuits.
SEBI, acting on the recommendations of its Secondary Market Advisory Committee, proposes three reforms. On base price, the existing rule for re-listed scrips is replaced with a tiered framework. Where suspension was revoked within six months, the latest closing price on the relevant exchange is used; where revocation was after more than six months, the lower of valuations certified by two independent chartered accountants or valuation agencies is used as the base price.
In terms of dummy price bands, the existing mechanism is retained but flexing is proposed to be made automatic and simultaneous across exchanges. Further, this is extended to operate through the random closure window. Additionally, a call auction shall be treated as successful only if orders from at least five unique PAN-based buyers and sellers contribute to the equilibrium price. If this threshold is not met, IPO scrips move to normal trading at the issue price, while re-listed scrips remain in call auction on the next trading day.
Dummy bands are a safeguard against erroneous orders, not an indication of value. They should therefore expand dynamically as genuine buying and selling interest emerges. Extending flexing through the random closure window follows from that principle. Since this is the final and most critical phase of price discovery, restricting flexing at that stage may exclude genuine orders and result in an equilibrium price that reflects only a portion of market interest.
The harder question is execution. In a session where minutes matter, real-time PAN validation and the simultaneous communication of flexing across exchanges will decide whether these are safeguards or bottlenecks. The framework will rise or fall on two things: the quality of the independent valuations used to fix the base price, and the latency of the automated flexing mechanism in practice.
The proposed framework gets one thing right. A price discovery mechanism is not meant to tell the market what a security is worth. It is meant to get out of the way while the market decides. For long-suspended scrips, the existing rules did the opposite, and the opening prices showed it. SEBI is not setting the price. It is finally letting the market do so.
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