SEBI released consultation paper on May 21, 2026, reviewing price discovery mechanism through pre-open call auction session for IPO and re-listed scrips. Current system uses call auction before regular trading to determine opening price based on demand-supply equilibrium. Paper seeks stakeholder comments on improving price discovery efficiency, reducing volatility, and enhancing market integrity during opening sessions. Review covers auction duration, order matching protocols, and transparency measures for better price formation.

The pre-open call auction session is a critical price discovery mechanism that determines opening prices for IPO and re-listed securities before regular market hours. Currently, this session allows market participants to place orders without immediate execution, creating a consolidated order book that reveals true demand-supply dynamics. The equilibrium price determined through this process becomes the opening price, reducing artificial volatility and manipulation attempts. SEBI's review addresses concerns about inadequate price discovery, especially for newly listed companies where historical price references are absent. The consultation examines whether current auction duration provides sufficient time for meaningful price formation, if transparency levels are optimal, and whether order matching algorithms effectively capture market sentiment. For IPO scrips, this mechanism is particularly crucial as it establishes the first market-determined price post-listing, affecting investor confidence and subsequent trading patterns. The review also considers international best practices and technological advancements that could enhance the current system's efficiency and fairness.