The Hindu Business Line : SEBI proposes price band on first day of trading in stocks after corporate action

Coimbatore April 3 The Securities and Exchange Board of India (SEBI) has proposed fixing of a price band on the first day of trading of shares after corporate action like de-merger, amalgamation, capital reduction etc.

The market regulator's action comes in the wake of price spike witnessed in some counters on the first day of trading after such corporate actions.

Base Price

At present, the stock exchanges do not apply price bands or circuit filter in respect of trading in shares on the first day of listing of Initial Public Offerings (IPOs), commencement/re-commencement of trading following a scheme of de-merger, amalgamation, capital reduction, scheme of arrangement, restructuring etc, and in the case of scrips listed/permitted on any other exchange where the scrip is not actively traded.

But dummy circuit filters/operating ranges (decided by BSE & NSE) were applied on the base price to avoid punching errors etc, if any.

Draft Policy

The SEBI, in a posting on its Web site on Tuesday, said that there were significant price spikes on the first day of commencement/re-commencement of trading in certain securities.

It was of the view that because of such large price rise on the first day of trading, it would be appropriate to apply price bands/circuit filters upon the commencement/re-commencement of trading for cases other than IPOs.

It said the issue had been discussed with the stock exchanges that have indicated that it would require a base price for applying the price bands/circuit filter. Accordingly, a draft policy has been framed for fixing the base price for cases other than IPOs.

Due Diligence

The SEBI has now proposed to fix a price band/circuit filter of 20 per cent (except trade-to-trade scrips where maximum price band/circuit filter of 5 per cent would be applied) by the stock exchanges on commencement/re-commencement of trading in all cases of de-merger, amalgamation, capital reduction, scheme of arrangements, revocation of suspension, etc as decided by the exchanges from time to time.

The companies should obtain valuation certificate from any of the SEBI registered merchant bankers in all such cases. The indicative price/fair value mentioned in the certificate of SEBI registered merchant banker provided by the company would be considered as the base price for applying actual price band/circuit filters upon the commencement/re-commencement of trading.

The merchant banker would undertake due diligence for the purpose of valuation which would be based on the financials and/or the other relevant information. However, the transfer/transaction price discovered, if any, outside the stock exchange mechanism, in the 1 year period prior to date of valuation, would not be considered for the purpose of fixation of the base price.

Methodology

The merchant bankers should adopt a policy, which, in their opinion was appropriate in arriving at the valuation and they should furnish to the exchange the methodology adopted while arriving at such valuation.

There should be sufficient advance notice to the market at large about the fixation of the base price/imposition of price band thereon, along with the detailed reasons for the company undertaking the exercise as well as details of the valuation undertaken by the merchant banker.

The SEBI has invited comments/suggestions on the above proposals that should be sent to it before April 17, 2007.

More Stories on : Stock Markets | Regulatory Bodies & Rulings | Restructuring

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Religare, Anyonya Coop in tie-up

Indian markets becoming `efficient'

Retail participation slows down for mutual funds

Import duty cut may hurt cement stocks

Andrew Yule sprints with volume

PSU stocks outperform other indices

Bull domination

SEBI proposes price band on first day of trading in stocks after corporate action

Markets bounce back with more broad-based buying

Rakesh Rawal joins AnandRathi