Stock exchanges, which were once strong advocates of a ban on price bands, have now turned jittery and it is at their insistence that the Securities and Exchange Board of India (Sebi) decided to consider the proposal of a price band on individual scrips under rolling settlement.
At the May 28 meeting of the risk management committee's sub-group, it was proposed that a price band of 20 per cent either way would be imposed on individual scrips under the rolling system.
At the May 14 Sebi meeting, the regulator had decided that individual scrips would not be subject to price bands since carryforward was being done away with and it was felt that market players should have a free exit route.
More From This Section
However, according to Sebi officials present at the meeting which was attended by all the major stock exchanges, exchange officials themselves made a strong plea to retain or impose fresh circuit filters.
When one of the members of the committee pointed out that this had been removed as per the previous meeting, exchange representatives said that certain scrips were prone to be too volatile and that it was necessary to impose circuit breakers.
"All scrips are not liquid," said a senior NSE official, pointing out that there have been several cases where the price increase has been rampant.
"People may try to misuse the relaxation given to them, while the presence of a circuit breaker would itself be a deterrent to such manipulations," he said.
The exchanges felt that during the transition period it would be better to continue with price bands - "but it was more in the nature of a recommendation and is subject to the Sebi board's approval," said the official.
The example given was that of Amara Raja Batteries, where price manipulation through circular trading had resulted in the scrip being ramped up unnaturally.
Exchanges are of course insuring themselves against something totally untoward happening. While the 8 per cent circuit filter was continuously hit, when the price band was raised to 16 per cent there were few scrips whose prices reached that level - either way.
The 20 per cent volatility swing is something which none of the exchanges want at this juncture.