The Securities and Exchange Board of India (SEBI) is considering imposing circuit filter on the day of listing to check excessive volatility. If circuit filter imposes on the listing day, price of the debutant share cannot go up or down beyond a level.
For example, if the issue price of a share is Rs 100 and the circuit filter is 10%, then trading will automatically be stopped as the price goes up to Rs 110 or down to Rs 90. Now, circuit filter is imposed from the day after listing.
However, experts are not convinced about the advantage of such a move. They feel that such a measure will deny an opportunity to the retail investor to exit while the operators will have a field day.
Mr Prithvi Haldea, Managing Director of IPO market tracker Prime Database, said that circuit filter on day one will stop natural discovery of the share’s price.
When the filter stops the trading, how will an investor exit? he asked. The market is volatile, he said. If there are manipulators, he added, punish the guilty and not all investors. But Mr Dhirendra Kumar, CEO of Value Research, said that such thinking is just reactive and could be useful only in the short term.We need to find a long-term solution. Problem is that people come for profit. That cannot be denied, he added.
According to sources, the Primary Market Advisory Committee of the SEBI will consider such a view in its meeting on Thursday.
Once recommended, the proposal will be taken for wider consultation and finally placed before the Board of SEBI. Sources also said that the market regulator is getting closer to the end of investigation into price and other manipulation in some IPOs. Just wait for 15 days, you will see action against the people involved. We will not allow anyone to play with the system, a person close to the development said.
The stock market regulator is working on measures to check manipulation in IPO. Usually such a manipulation ends with listing of the shares, where people try to get advantage of free movement of the price on day one.
Mostly big investors get the benefit of such a price movement and retail investors do not get any sense about such a move and burn their fingers, a person familiar with the development said.