How did D-Mart shares double on day one?

Answer lies in pre-open call auction, which is a 45-minute window for price discovery

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Shares of Avenue Supermarts, which operates successful retail chain D-Mart, doubled during their stock market debut on Tuesday.

While, DMart is not the first company whose stock has doubled on listing day—there have been at least eight other companies— but it is the first since market regulator Securities and Exchange Board of India (Sebi) introduced listing day circuit filters.

To curb listing day volatility, Sebi in 2012 introduced circuit filters and the so-called pre-open call auction for IPO stocks. Depending on the size of the Initial Public Offer (IPO), stocks were allowed to move in a trading band of either 10 per cent or 20 per cent on their listing day.

1489073120-8576Then how did Dmart shares double? The answer lies in pre-open call auction, which is a 45-minute window for price discovery before the actual trading begins. During this pre-open sessions, buyers and sellers key in the price at which they want to buy or sell a stock. The prices are then collated and price at which most bids are received becomes the “equilibrium price”. The circuit filters apply on the equilibrium price.

In case of DMart, the equilibrium price was Rs 604, 102 per cent higher than the issue price of Rs 299. The 20 per cent circuit filter in case of DMart was on the discovered price. Therefore, trading would have halted in the counter if the stock would have gone to either Rs 725 or Rs 483.| READ MORE 

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