The Securities and Exchange Board of India (Sebi) requested stock exchanges on Tuesday to determine a "common equilibrium price," or CEP, for equities on the first day of trading following the initial public offering.
At the moment, share prices are determined using a call auction mechanism."Call auction sessions are held on a variety of stock exchanges." The identified price / equilibrium price as a result of such call auction sessions may range from exchange to exchange,"
The IPO price is determined by the demand and supply for the shares. The underwriters assess the demand for the shares by conducting roadshows and gauging investor interest. They then set the IPO price based on this demand and the company's financial performance, industry trends, and other factors.
However, the IPO price is not necessarily the same as the opening price on the first day of trading. When a company's shares are listed on an exchange, the market forces of supply and demand come into play, and the stock price fluctuates based on investors' perceptions of the company's future prospects.
The opening price on the listing day is determined by the exchange's auction process. In an auction, buyers and sellers place their orders with the exchange, indicating the number of shares they wish to buy or sell and the price they are willing to pay or receive.
The exchange then matches the buy and sell orders, and the price at which the maximum number of shares are traded becomes the opening price. This process continues until all orders are filled, and the market reaches an equilibrium price.
The equilibrium price is the price at which the supply and demand for the shares are balanced, and the market is in a state of equilibrium. This price may be higher or lower than the IPO price, depending on market conditions and investor sentiment.
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