Key facts
- SEBI proposed a new mechanism to ensure uniform pricing for illiquid stocks across exchanges.
- The proposal aims to improve price discovery and liquidity by using the closing price from the highest-volume exchange.
- Currently, exchanges independently calculate circuit limits based on their own previous closing prices.
- The changes are expected to primarily affect illiquid and small-cap stocks.
- Public comments on the consultation paper are due by July 2.
India's market regulator, the Securities and Exchange Board of India (SEBI), has proposed a new mechanism to prevent the same stock from trading at significantly different prices across exchanges. This move is intended to improve price discovery and liquidity, particularly for thinly traded shares.
Under the proposal, if a stock does not trade on one exchange but is active on another, the inactive exchange would use the active exchange's closing price to determine the next day's pre-open base price and price band. Currently, exchanges calculate circuit limits independently based on their own previous closing prices, which can lead to prolonged periods of non-trading on one exchange and price divergence.
SEBI also suggested that if a stock trades on multiple exchanges but remains inactive on one, the inactive exchange should adopt the closing price from the exchange with the highest trading volume. Implementing this system would require exchanges to establish arrangements for sharing closing-price data.
The proposed changes are expected to mainly affect illiquid and small-cap stocks that do not trade regularly across all exchanges, while actively traded securities are likely to see minimal impact. SEBI stated that this initiative is part of its broader effort to strengthen market infrastructure by improving price discovery and reducing structural inefficiencies. Public comments on the consultation paper have been invited until July 2.