Small IPOs to face price band on listing

Issue cut-off size at Rs 200 crore, move to curb manipulation: Sebi.

The Securities and Exchange Board of India (Sebi) proposes to ask the stock exchanges to put circuit filters on the first day of listing of those companies with issue sizes up to Rs 200 crore. A formal communication to this effect is expected shortly.

A circuit filter is a daily price band imposed by the exchanges on the price movement of listed securities. There is no circuit filter on the first day of listing, which is a price discovery day, and the prices of the securities can move freely without any limits.

After the first day of listing, the exchanges put a price band of 20 per cent for the movement of the stock prices. However, the level of circuit filter proposed for IPOs on the first day of listing is not known.

A huge number of companies have come out with public issues of Rs 200 crore or below in the past few years. Sebi is looking at these relatively small issues because not much information is available in the public domain about most of these companies.

The decision follows the recent Sebi investigation into the huge surge in equity prices of six companies on listing day. The market regulator has also observed that certain entities placed abnormally large share orders at prices far below the prevailing market rates on the opening day.

The market regulator concluded that the intention of placing such orders was not for genuine trading but only for artificial enhancement of demand, a manipulative practice. The securities under the regulator's scan now are Mindtree, Shree Asthavinayak, Pyramid Saimira, Pochiraju, Cambridge and Al Champdany.

Abnormal price rallies have also been observed when shares are relisted. Several companies that delisted from regional exchanges to list on the national exchanges have seen a 900-1,000 per cent increase in their shares on listing day.

For example, Delhi-based Ahluwalia Constructions saw a 1,000 per cent rise in its scrip prices when it relisted on the Bombay Stock Exchange on February 22 this year.