Summary of this article
Sebi plans to overhaul Special Pre-Open Session norms to fix distorted price discovery mechanisms.
The regulator may introduce uniform flexing of dummy price bands across all stock exchanges.
Proposed changes aim to protect retail investors from price rigging and artificial listing day traps.
The primary market is seeing renewed investor interest in 2026. As on January 15, 2026, two mainboard issues have opened for subscription and the Securities and Exchange Board of India (Sebi) has approved the public issues of multiple companies. Amid the massive investor interest in the primary market, the capital market regulator is likely to tweak the listing mechanism for price discovery for new and re-listed stocks.
Sebi is likely to make changes to the special pre-open session (SPOS) mechanism for listing-bound stocks and review the use of dummy price bands, flexing norms, and the method through which base prices are derived. Sebi plans to undertake the review to avoid distorted price discovery for stocks which are expected to list soon, according to a report by the Hindu BusinessLine.
What Is Special Pre-Open Session (SPOS)
The Special Pre-Open Session (SPOS) is a 60-minute session which takes place between 9:00 am and 10:00 am to determine the listing or starting price for certain stocks before they list on the exchanges. Typically, SPOS are triggered when a stock makes its D-Street debut, re-lists on the exchanges, or when companies go through mergers or demergers.
Sebi mandates that no price-band is used in an SPOS; instead the stock trades on the basis of a dummy price band. The dummy price band acts as a safety limit used by exchanges to prevent trading errors during the price discovery process. The primary reason for dummy bands is to stop accidental typos from ruining price discovery. Additionally, the mechanism for the SPOS uses the call auction mechanism wherein the system finds a single price that satisfies the maximum number of buyers and sellers in the SPOS. This price is also called the equilibrium price or listing price in case of initial public offerings (IPOs).
Why Is Sebi Reviewing The Mechanism
The process of price discovery through SPOS came under scrutiny in 2025 during the listing of Swan Defence’s shares following its acquisition of Reliance Naval and Engineering. Notably, Swan Defence represented to Sebi that following the SPOS, the stock listed at Rs 35.99 per share which is significantly lower than its “break-even” or “fair value” of roughly Rs 2,750 (based on the acquisition cost and swap ratio). The company said that the use of face value as the base price along with dummy price bands lowered the discovery price for the stock.
Sebi is now likely to continue the use of dummy price bands during SPOS, but is expected to revise the framework to make it more consistent and less restrictive. In order to do so, Sebi is considering making the mechanism for flexing dummy price bands during SPOS uniform across exchanges. Flexing refers to the widening of the dummy price bands during the session to allow for a more accurate price discovery.
At present, the dummy price bands are flexed only in multiples of 10 per cent, and the flexing is allowed only till one minute prior to the random closure period. Other measures which the market regulator is seeking to adopt include treating the SPOS as successful only if the price discovery is based on orders from at least five Permanent Account Number (PAN)-based traders. Additionally, Sebi is also seeking to bring the discovered price more in-line with the book-value of the stock. At present, stock exchanges use the lower-end of the book-value estimate for price discovery.
How Are These Changes Likely To Impact Retail Investors
The proposed overhaul of the SPOS rules is expected to impact retail investors holding shares in a company undergoing a merger, demerger, or those investors who have been allotted shares in an IPO.
Typically, the resultant entity formed after a merger has no trading history. Thus, if the “dummy” price band is narrow, the stock can hit a ceiling and “freeze” before reaching its true value. The proposal to make flexing of the dummy price band uniform can potentially ensure that investors are not “locked” out of a fair price. Additionally, the proposal to base the equilibrium price on orders placed by at least five unique buyers and sellers (based on PAN) is likely to prevent “price rigging” by bigger players in the stock market.
The report added that the proposals have been approved and will be internally considered before Sebi releases a consultation paper on the same. Outlook Money could not independently verify the facts mentioned in the report.
