Sebi Proposes New Price Discovery Mechanism for Listed Investment
Sebi Proposes New Price Discovery Mechanism for Listed Investment  
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Sebi Proposes New Price Discovery Mechanism for Listed Investment Holding Companies; Learn More

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The Securities and Exchange Board of India (Sebi) proposed a framework for new price discovery mechanism of listed investment companies (ICs) and listed investment holding companies (IHC)). This move seeks to eliminate the disparity observed between traded price of these IHCs and their book value.

Investment holding companies (IHCs) are companies that primarily hold investments across diverse asset classes in other companies, including shares of other listed companies, mostly belonging to group firms. These IHCs usually trade at a substantial discount to the value of their holdings. Sebi, invites stakeholders' comments on this proposal until May 10, 2024.

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Background

Some market observers had observed that the significant difference between market price and book value of these companies is adversely affecting liquidity, fair price discovery, and investor interests. They had sought Sebi's intervention for a fair price discovery.

“A special call-auction mechanism without price band may be enabled for listed ICs and IHCs, whose shares are trading beyond a certain discount to their book value,” Sebi's consultation paper said. Price bands, typically means thresholds like 5 per cent, 10 per cent, or 20 per cent, put in place regulate volatility and place risk management or surveillance measures. Under the proposed framework, stock exchanges are mandated to provide a special call auction mechanism for such companies and furnish a seven-day prior notice before activating this auction.

Such auction will be considered successful if at least 5 unique buyers and sellers participate in it. Furthermore, Sebi outlined specific criteria for the eligibility of IHCs under this framework. Only IHCs with a minimum of 50 per cent of the total assets invested in shares of other listed companies, and with the 6-month Volume Weighted Average Price (VWAP) below 50 per cent of the book value, would qualify for such auction. Sebi's proposal further said that this special call-auction mechanism may be provided to eligible investment companies only once a year.