# Equilibrium Price for IPO Listing

SEBI [circular] has introduced a small but necessary change in how the IPO listing price is discovered.

On the listing day, the volume weighted average price [VWAP] across both NSE & BSE will be considered to find the common equilibrium price i.e. the listing price of the stock.

#### When will a common equilibrium price (CEP) be calculated?

A CEP will be calculated only if both conditions are fulfilled:

1. The difference in the equilibrium price between exchanges in percentage terms (i.e., absolute difference/minimum of equilibrium prices, expressed as %) is more than the applicable price band for the scrip.
2. The pre-open session is conducted on multiple stock exchanges.

#### How will the CEP get calculated?

Let’s understand this with an example. Suppose,

A. Price band for the scrip = 5%
B. Issue price = Rs 100
C. Pre-open price on NSE = Rs 104
D. Pre-open volume on NSE = 10 shares
E. Pre-open price on BSE = Rs 97
F. Pre-open volume on BSE = 5 shares
G. Percentage difference in Equilibrium price = (104/97 x 100) = 7.21 %

Since G > A, CEP (Common Equilibrium Price) has to be calculated. i.e. VWAP of both pre-open prices

= (( C x D ) + ( E x F )) / ( D + F )

= ((104 x 10 ) + ( 97 x 5 ) / ( 10 +5 )

= (1040 + 485) / 15

= 101.70 [rounded-off to the nearest 5 paise tick size]

#### Why bring this change?

In the above example, let’s say the CEP regulation was not in place. The listing price on NSE and BSE will be different by 7.21%. If the stock hits an upper circuit (5%) on both exchanges, the NSE closing price is 109.2, and the BSE closing price is 101.85. This difference will be hard to bridge on stocks which have unidirectional circuits. Also, the price difference between the exchanges will keep increasing.

#### What type of IPOs will get disqualified due to the 2nd condition?

SME IPO listings happen on only one exchange. So, CEP is not applicable.

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