SEBI Proposes Measures To Reduce Price Mismatch Across Exchanges

Market regulator the Securities Exchange Board of India (SEBI) has sought public comments on a proposal aimed at tackling variations in stock prices across exchanges where the same security is traded. The draft framework also outlines a process for exchanging closing-price data between stock exchanges.

The proposal aims to improve price discovery in shares that see little or no trading activity on one of the exchanges. According to the regulator, differences in trading activity can sometimes lead to large gaps in closing prices for the same stock across platforms.

Proposed Changes In Price Calculation

Under the proposal, if a stock trades on only one exchange during the day, that exchange's closing price will be used by the other exchange as the reference price for the next session.

If trading takes place on more than one exchange but remains absent on another, the closing price from the exchange with the highest trading volume will be considered the reference price.

This reference price will then be used to set the next day's price band and pre-open call auction price on the exchange where no trades occurred.

SEBI has not suggested any change for stocks that trade on all exchanges or remain inactive across all of them. In such cases, exchanges will continue to follow the existing method.

Reason Behind The Proposal

According to SEBI, the current framework does not provide a way to update reference prices on exchanges where no trading takes place.

Over time, this can create large differences in prices between exchanges for the same stock. Such gaps may also delay the return of trading activity in stocks that remain inactive on a particular platform.

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To make the system work smoothly, SEBI has proposed that exchanges share closing-price data with each other.

The regulator has invited feedback from market participants and the public. Comments can be submitted until 2 July.

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Sources:

CNBC TV18

Moneycontrol