The Securities and Exchange Board of India (Sebi) is considering imposing a price ceiling on the day a company's scrip is first listed.
This is aimed at preventing prices of newly-listed shares from rising beyond a certain limit on a day when circuit filters are not in place.
Circuit filters, which prevent shares from rising or falling beyond a prescribed limit, kick in only the day after shares are listed. This is because the listing day allows for price discovery, which ensures that a reference price is set for circuit filters.
At present, a dummy circuit filter is in place, under which stock exchanges informally inform the regulator when prices of a certain scrip rise more than 100 per cent above their subscription price on listing day. However, the lack of a formal price ceiling or circuit filter has resulted in the prices of many company stocks rising exorbitantly on listing day.
The regulator is likely to ask stock exchanges to impose a price ceiling even for those companies that are relisting (i.e. after they are de-listed from regional stock exchanges) on the main stock exchanges. The last price on a regional stock exchange could be treated as the base for fixing the price ceiling, sources familiar with the developments said.
The market regulator has requested the stock exchanges to be vigilant against such huge price increases on the first day of listing when no circuit filter is operational.
While curbs have been imposed on Nissan Copper, several other scrips like Ahluwalia Contracts and Al Champdany have also witnessed similar price increases after relisting (See chart).
| SKYROCKETING ON DEBUT In Rs | |||||||
| Listing date |
Issue price |
List price |
High | Low | Close | % chg | |
| Ahluwalia Co | Feb 22, 2007 | 10 | 577.80 | 611.90 | 101.50 | 577.79 | 502.86 |
| AI Champdany | Feb 14, 2007 | 10 | 234.65 | 306.00 | 80.00 | 234.65 | 282.50 |
| Nissan Copper | Dec 29, 2006 | 39 | 128.80 | 135.69 | 40.00 | 128.80 | 239.23 |
The Ahluwalia Contracts scrip, for example, witnessed a more than 500 per cent price increase immediately after its relisting on February 22 this year.
The company filed for a follow-on public issue in May 2006, but the application is pending with Sebi.
Market sources said the price on the BSE after relisting becomes the reference point for a follow-on public issue. But the regulator sees it as too high a price considering that the scrip was traded at Rs 40-48 on the Delhi, Jaipur and Kolkata stock exchanges in May 2006 when the company originally filed the prospectus.
In response to a query, company executives said the scrip price had moved up on the back of good fundamentals. Moreover, it has asked Sebi for an extension for its public issue.