Big changes in IPO listing and pre-open session? SEBI likely to bring new price discovery framework

The Securities and Exchange Board of India (SEBI) is preparing to change some important rules for IPO listing day and relisted stocks, sources told Zee Business.

The regulator may soon bring a consultation paper on the special pre-open session — a process that helps decide the first trading price of a stock before normal market trading begins.

The aim is simple: make price discovery smoother, faster and safer for investors.

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First, what is a pre-open session?

Think of it like an “opening test” before the real trading starts.

When a company gets listed through an IPO, or when an old stock gets relisted after a long gap, the exchange does not allow direct trading immediately at 9:15 am.

Instead, it first opens a short special session called the pre-open session.

During this time, buyers place buy orders and sellers place sell orders.

The exchange looks at these orders and finds a fair price for the most buying and selling to take place . This becomes the first market price for the stock . This process is called price discovery .

In simple words, it helps the market decide what the stock is actually worth on Day 1.

Why is this needed?

Without this system a stock could open at any random price and jump all over the place in minutes . That can create panic and unfair prices for small investors .

The pre-open session helps reduce this risk and gives a more balanced opening.

What is dummy price and circuit filter?

• During this process, exchanges use something called a dummy price.
• This is not the final price. It is only a temporary reference price used while matching buy and sell orders.
• Along with this, exchanges apply circuit filters.
• A circuit filter is like a safety wall.
• It makes sure the stock price does not move too much in one direction because of mistakes.
• This protects against “fat finger” trades.
• For example, if someone wants to place an order at Rs 500 but mistakenly types Rs 5,000, it can badly disturb the stock price.
• Circuit filters help stop such errors.

What are the current rules?

Right now, for IPO listings, the allowed price range is minus 50 per cent to plus 100 per cent from the issue price.

For example, if the IPO price is Rs 100, the stock can move between Rs 50 and Rs 200 during pre-open.

For relisted stocks, the range is wider — minus 85 per cent to plus 50 per cent.

Also, SEBI rules say the pre-open session is successful only if there are at least five unique buyers and five unique sellers using separate PAN numbers.

If this does not happen, the exchange keeps the process open until proper price discovery happens.

What may change now?

SEBI is discussing whether this system should become more automatic. Right now, exchanges manually coordinate to revise circuit filters and dummy prices. The regulator may automate this process.This can bring down the listings and reduce delays. SEBI is also looking at whether the existing price bands are still relevant and whether the base price used for the opening should be changed.

Why should investors care?

• Because this decides the very first price you see on listing day.
• If the system is better, investors get fairer prices and lower chances of sudden shocks.
• In short, SEBI wants IPO listing day to become safer, cleaner and more transparent for everyone.