India’s market regulator, the Securities and Exchange Board of India (SEBI), has put forward a new plan to prevent stocks from trading at vastly different prices on various exchanges. This move aims to enhance price discovery and liquidity, especially for less actively traded shares. SEBI suggested that inactive exchanges should use the closing price of active exchanges to set the next day’s pre-open base price and price band.
Currently, exchanges set circuit limits independently based on their own closing prices, leading to extended periods of non-trading on one exchange for illiquid stocks. This can result in divergent market prices for the same security, limiting trading. SEBI’s proposal seeks to address these discrepancies and ensure consistent price bands for stocks listed on multiple exchanges.
SEBI also recommended that if a stock is traded on multiple exchanges but remains inactive on one, the inactive exchange should adopt the closing price from the exchange with the highest trading volume. To implement this, exchanges would need to establish mechanisms for sharing closing-price data.
These changes are anticipated to impact primarily illiquid and small-cap stocks that do not trade regularly across all exchanges, with minimal effects on actively traded securities. SEBI views this initiative as part of its broader strategy to enhance market infrastructure by improving price discovery and reducing structural inefficiencies that can impede trading. Public feedback on the proposal is welcome until July 2, with potential benefits including smoother trading in illiquid stocks for investors and decreased artificial price gaps and execution challenges across exchanges.
