‘Single price for multi-exchange stocks’, Pg16

Key Highlights:

• The Securities and Exchange Board of India (SEBI) has proposed a mechanism to unify the base price for stocks listed on multiple exchanges.
• This initiative aims to address price divergence that occurs when a stock trades on one exchange but not on another.
• Currently, stock exchanges independently apply price bands based on their respective previous day's closing prices.
• The proposed solution seeks to harmonize pre-open call auctions and price bands to ensure a single, consistent price across platforms.
• SEBI noted instances of significant price differences in liquid stocks due to non-trading on certain exchanges.

Detailed Insights:

• The existing system allows for discrepancies in closing prices for the same stock across different exchanges, particularly when trading is inactive on one platform.
• This lack of a unified mechanism for adjusting price bands on non-trading exchanges leads to a progressive increase in price divergence.
• Such divergence can potentially result in a stock remaining untraded on one or more exchanges, impacting market efficiency and fairness.
• SEBI's proposal suggests that if a stock trades on all exchanges or remains non-traded across all exchanges on the previous day, each exchange should continue using its latest closing price for determining subsequent day's price bands.
• This regulatory intervention is crucial for maintaining market integrity and ensuring fair price discovery for investors in a multi-exchange environment.

Key Concepts Involved:

• Securities and Exchange Board of India (SEBI): The statutory regulatory body established in 1992 to protect investors' interests and regulate the Indian securities market.
• Price Bands: Predetermined upper and lower limits within which a stock's price can fluctuate during a trading session, designed to control volatility.
• Pre-open Call Auction: A session before regular market hours (typically 9:00 AM to 9:15 AM in India) where orders are collected and matched to determine the opening price of a stock.
• Price Divergence: A situation where the price of the same stock varies significantly across different stock exchanges, often due to differences in trading activity or price band application.