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The Securities and Exchange Board of India (SEBI) has proposed major changes to the listing framework for large initial public offerings (IPOs) to improve price discovery. The proposal, outlined in a consultation paper yesterday, suggests a two-phase trading approach for IPOs with an issue size over INR 10,000 crore. Under this plan, only institutional investors would trade for the first two days, with retail investors allowed to enter the market from the third day onwards. SEBI believes this will allow for a market-driven price to be established, protecting retail investors from volatility and potential losses. The regulator is accepting public comments on the proposal until August 25.
The Securities and Exchange Board of India (SEBI) has proposed major changes to the framework for listing large initial public offerings (IPOs). The goal is to improve how prices are discovered in a gradual way while also boosting the number of retail investors taking part. Advertisement
The new proposals come after a few large IPOs saw their prices fall sharply after listing, which harmed retail investors. This raised concerns about how well the current IPO pricing system works.
Under the new plan, which would apply to large IPOs with an issue size over INR 10,000 crore, trading would happen in two phases. In the first phase, for the first two days, only institutional investors, such as qualified institutional buyers (QIBs) and non-institutional investors (NIIs), would be allowed to trade on the stock exchanges. In the second phase, retail investors would be allowed to trade from the third day onwards. SEBI stated that this approach would allow informed investors to set a market-driven price, which would then act as a reference point for retail investors.
SEBI also proposed to reserve 5 percent of the QIB portion in such IPOs exclusively for mutual funds, in a move to encourage their participation. The regulator's proposals are open for public comments until August 25.
According to SEBI, separating the trading windows would lower the risk of losses for retail investors, who often rely more on market mood than on a company's fundamentals. The goal is to ensure they enter the market with a clearer sense of the stock's value.
Market participants have had different reactions to the proposed changes. While some welcomed the move, saying it would protect retail investors from volatility, others said it might lead to lower liquidity in the first few days of trading.
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