SEBI issues new rules to prevent IPO manipulation

The Securities & Exchange Board of India on Friday made good on its promise of reforming initial public offering rules to prevent manipulation of prices on the day of listing.

The new rules make it tougher for stock market operators to make windfall gains on the listing day. SEBI has imposed price bands for shares making their debut on the stock exchanges.

Under the changed rules, which will be effective once stock exchanges modify their trading systems to suit them, there would be a 45-minute special session on the day stocks are listed, after which it will trade in the regular session.

The closing price in this special session will be the reference point for the stock when it enters the regular session, in which there would be a circuit filter of 5 per cent for stocks whose IPO size is Rs250 crore or less. This limit will be 20 per cent if the IPO size is over Rs250 crore, a SEBI circular noted.

In case of issues of Rs250 crore or less, all the trades will be on a trade-for-trade basis for the first 10 days since listing. This means there would be no scope for day trading in the stocks of smaller companies during this period. This rule will not apply to issues of over Rs250 crore.

The market regulator said that the rules that are applicable to issues of Rs250 crore or less will also apply to stocks which are re-listed after a gap.