SEBI Proposes Uniform Pricing Framework For Stocks Traded Across Exchanges

SEBI has suggested a system to resolve any discrepancy in prices for the stocks listed at multiple exchanges, especially where trading is minimal. The proposal seeks to ensure that the same security does not trade at significantly different prices across exchanges due to prolonged periods of inactivity on one platform.

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In a consultation paper issued on Thursday, the regulator suggested that when a stock does not record any trades on one exchange but remains active on another, the inactive exchange should use the closing price from the active exchange to determine the next trading day’s reference price and applicable price band.

The proposal is intended to improve market efficiency and eliminate situations where outdated closing prices continue to influence trading limits on exchanges where a stock remains inactive.

Addressing Price Divergence

Currently, every stock exchange sets its circuit limits individually according to their respective previous closing prices. In case of illiquid securities, lack of trading can lead to non-changing closing prices and fixed price bands.
On the other hand, the same security continues to be traded at a different price level at another exchange. This could eventually lead to a situation wherein a security is available at a different price according to the exchange at which it is traded.

It was observed by SEBI that this divergence might impact price discovery and trading facilities. The proposed framework aims to establish greater consistency across exchanges by aligning reference prices whenever trading activity is absent on one platform.

Highest-Volume Exchange To Serve As Reference

The regulator has also proposed that where a stock is traded on multiple exchanges but remains inactive on one of them, the inactive exchange should adopt the closing price from the exchange that records the highest trading volume in that security.

To facilitate implementation, exchanges would be required to establish systems for sharing closing price data with one another.

Based on the definition by SEBI, the system will enable the maintenance of a consistent range of price bands while minimizing the difficulties that could arise due to variations in pricing among different trading floors.

Impact Expected to Be Small on Liquid Stocks

The proposed amendment will not be of much effect on liquid stocks because prices tend to be relatively consistent owing to constant trades conducted at different exchanges. The amendment will however, be beneficial for investors who trade illiquid and small-cap stocks that experience little or no trading activity at one or two exchanges.

Public Feedback Invited

SEBI has invited comments from market participants and the public on the consultation paper until July 2. The proposal forms part of the regulator’s ongoing efforts to strengthen market infrastructure, improve transparency and support efficient price discovery. If implemented, the changes could help eliminate artificial pricing gaps and create a more uniform trading environment for investors across exchanges.