SEBI Proposes Uniform Pricing Mechanism for Illiquid Stocks
India's market regulator SEBI is proposing a new system to ensure illiquid stocks trade at consistent prices across multiple exchanges by using the active exchange's closing price as a reference for the inactive exchange's next trading session. The measure aims to improve price discovery and liquidity while making trading in less frequently traded shares more efficient for investors.
According to reports, India's Securities and Exchange Board of India (SEBI) is proposing a uniform pricing mechanism designed to harmonize stock valuations across different exchanges. The proposal addresses pricing discrepancies for illiquid stocks that trade on multiple exchanges. Under the proposed framework, when a stock trades more actively on one exchange, the less active exchange would reference the active exchange's closing price for its subsequent trading session. This approach is intended to reduce arbitrage opportunities and ensure more consistent pricing signals across the market. The regulatory announcement indicated that this change would particularly benefit trading in shares with lower trading volumes, which currently suffer from inefficient price discovery mechanisms and liquidity constraints.
The significance of this regulatory proposal extends beyond individual stocks to the broader Indian equity market structure. Fragmented pricing across exchanges can discourage institutional and retail participation in illiquid securities, as investors face uncertainty about fair value and execution quality. By standardizing prices, SEBI's proposal addresses a structural inefficiency that has historically hampered the trading experience in lower-volume securities. This move reflects the regulator's focus on strengthening market microstructure and investor protection. For traders and market participants, smoother trading in illiquid stocks could reduce transaction costs and execution friction, potentially improving overall market efficiency and accessibility to a broader range of securities.
Source: Markets-Economic Times
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