IPO Listing: The Final Step to Public Trading
IPO listing is the procedure whereby shares of a private business are listed on the stock exchange, so they can be traded publicly. Investors can purchase and sell the shares after listing through a stock broker.
The listing comes about after the IPO shares have been allocated and credited into the demat accounts of the investors. The company chooses in which stock exchange it will list its shares.
Mainboard IPOs can be listed on one or both of the stock exchanges (NSE and BSE), whereas SME IPOs can be listed only on one exchange.
An IPO begins in the primary market at the time of offering. After listing of the shares, they become the secondary market.
IPO Listing Date
IPO Listing Date is the day when the shares of a company start trading in the stock market. It is the day from which investors are allowed to buy or sell the shares of the company.
Generally, the listing date is finalized about six working days from the close of the IPO. After it is finalized, the last listing date is notified on the exchange website.
Note: With effect from December 1, 2023, the IPO listing timelines have been shortened to three working days from the close of the IPO.
IPO Listing Process in India
The IPO listing procedure is the last step wherein shares of a firm are made available for public trading. Prior to listing, the firm goes through a number of steps:
- The firm hires merchant bankers (lead managers).
- Merchant bankers evaluate IPO eligibility and listing requirements.
- They obtain in-principle approval from the stock exchanges.
- Merchant bankers draft and submit the offering documents to SEBI and the exchanges for approval.
- They engage other intermediaries to help in the process.
- The firm organizes publicity of the IPO by PR and advertising agencies.
- The bidding time for investors starts for the IPO.
- Following allotment, the refund process and crediting shares to demat accounts begins.
- Lastly, the company lists the shares on the chosen stock exchange(s).
IPO Listing Timing
On the listing date, the day starts with the IPO listing ceremony at 9:00 AM. The trading session is divided into two sessions:
- Pre-Open Session (9:00 AM to 10:00 AM)
- Regular Session (10:00 AM onwards)
Pre-Open Trading Session
The Pre-Open Session facilitates price discovery and operates from 9:00 AM to 10:00 AM on the listing day. It has three phases:
1. Pre-Open Order Placement (9:00 AM - 9:45 AM)
Orders can be placed, amended, or cancelled. Orders are not executed here.
2. Pre-Opening Order Matching (9:45 AM - 9:55 AM)
The exchange sets the equilibrium price (listing price) according to demand and supply. Orders that are of matching price are executed, and others are shifted to the regular session.
3. Preparation for Regular Trading (9:55 AM - 10:00 AM)
The exchange prepares IPO shares for regular trading.
Equilibrium Price
The equilibrium price is the price at which demand equals the supply of IPO shares.
For determination of the Listing Price, exchanges employ the Common Equilibrium Price (CEP), which is calculated from equilibrium prices on the various exchanges. For example, if the BSE equilibrium price is ₹120 for 300 shares and on NSE ₹100 for 500 shares, the CEP would be a weighted average:
CEP = (120×300) + (100×500) / 800 = ₹107.50
The band of prices to trade would subsequently be fixed 5% higher and lower than the CEP.
IPO Listing Pre-Open Session Activities
| Duration | Session |
|---|---|
| 9:00 AM - 9:45 AM | For entering, changing and canceling orders. |
| 9:45 AM - 9:55 AM | For order matching and trade confirmation. |
| 9:55 AM - 10:00 AM | Buffer time for transition from pre-open session to regular session. |
Procedure to purchase/sell IPO stock in pre-opening market
- Input the price on which you would like to buy or sell.
- If listing price is equal to or in your favor than the price at which you have set your pre-open buy/sell order, the order will be filled at the listing price.
- These unexecuted orders will be transferred to normal trading.
Pre-market order execution example
| Buy/Sell | Limit Order Price | Order Gets Executed (Y/N) |
|---|---|---|
| Buy | 505 | N |
| Buy | 510 | Y |
| Buy | 515 | Y (@ 510) |
| Sell | 505 | Y (@ 510) |
| Sell | 510 | Y |
| Sell | 515 | N |
Note: The above is a simple illustration to explain the limit order execution based on price. The degree of order execution will depend on the demand and supply of shares.
Pre-Open IPO Shares Trading Regulations
- Order Timing Deadline: Orders to enter, change, or cancel during the Pre-Open Session must reach us by 9:45 AM. Executions take place between 9:45 AM and 9:55 AM.
- Order Type: Limit orders alone are executed in the Pre-Open Session; market orders are not accepted.
- No Price Bands: Price bands are absent in the Pre-Open Session to allow for price discovery.
- Unexecuted Orders: All unexecuted orders during the Pre-Open Session will be transferred to the regular trading session.
Regular Session
The regular session starts after the Pre-Open Session and is the usual trading period. In this period, IPO shares are traded as any other stock. Depending on the IPO's listing price, the exchange fixes an upper and lower price band for the day.
IPO Listing Price
The IPO listing price is the list price of the IPO share on the day it lists, arrived at in the Pre-Open Session between 9:45 AM and 9:55 AM.
IPO Listing Day Circuit Limit
Stock exchanges impose a circuit limit for IPO shares on their listing day to avoid steep price movements. The circuit limit specifies the extent of maximum allowable price movement from the listing price.
The following are the regulations for fixing the circuit limits for IPO shares:
- For issue size up to ₹250 crores: Price band is 5% +/-.
- For issue sizes above ₹250 crores: Price band is 20% +/-.
IPO Shares Listing Groups
When an IPO is listed by a company, the stock exchanges allocate the stock to a listing group along with other information like ISIN and BSE/NSE codes. The listing group decides the method of settlement and whether intraday trading is permitted for the stock.
Listed companies are grouped based on the size of the issue volume, and the NSE and BSE apply distinct group codes or series to denote the listing group of the stock.
BSE Group list
The newly listed BSE equity stocks get classified into A,B or T groups as per below:
| BSE Group Code | Basis of grouping | Settlement Type | Intraday Trading Allowed |
|---|---|---|---|
| A | Market capitalization of Rs. 1 lakh crore and more | Rolling | Yes |
| B | Issue size more than Rs. 250 crores | Rolling | Yes |
| T | Issue size up to Rs. 250 crores | Trade for trade | No |
The investment trusts viz. REIT (Real Estate Investment Trust) and InvIT (Infrastructure Investment Trust) get listed in 'IF' group.
NSE Series List (NSE Stock Group List)
NSE groupings are known as NSE series. The newly listed IPO stocks are classified into EQ and BE series as per below.
| NSE Series | Basis of grouping | Settlement Type | Intraday Trading Allowed |
|---|---|---|---|
| EQ | Issue size more than Rs. 250 crores | Rolling | Yes |
| BE | Issue size upto Rs. 250 crores | Trade for trade | No |
Investment Trusts (InvIT) NSE Listing Groups
| Exchange | Security | Series/Group | Segment |
|---|---|---|---|
| NSE | InvITs | IV | Rolling |
| NSE | InvITs | ID | Trade for Trade |
| NSE | REITs | RR | Rolling |
| NSE | REITs | RT | Trade for Trade |
Points to be noted:
- According to SEBI Circular CIR/MRD/DP/02/2012 on Trading Controls in IPOs, IPO trading with issue size up to Rs 250 crores shall be done in the TFT segment for the initial 10 days from listing. After that, the shares are shifted to the respective stock exchange's rolling segment.
- The stock exchanges periodically review the listing groups. Shares can be shifted from one listing group to another depending on their trading level, liquidity, risks and some other factors. The stock exchanges notify investors of the group change through notices and circulars.
Key Comparisons
1. IPO Listing and Current Price
| IPO Listing Price | IPO Current Price | |
|---|---|---|
| Meaning | The price at which the IPO opens for trading on the day of listing. Exchange determines the listing price as equilibrium price based on the demand and supply of IPO shares in Pre-Open session. | The price at which the stock trades in the normal trading window after listing. |
| Announcement | The listing price is announced on the day of listing. | The current price is the market price of the share, which changes constantly during trading sessions. |
2. IPO Issue price and listing price
| Issue Price | Listing Price | |
|---|---|---|
| Meaning | The price at which a company sells its stock. | The opening price of the share on the listing day. |
| Pricing factor | An issuer sets the issue price based on various factors such as company valuation and company prospects. | Stock exchanges set the listing price based on orders in the pre-open market trading session for IPO. |
| Announcement | Announced before the start of the subscription period. | Announced at 9:55 am on the day of listing. |
3. IPO Listing Price versus Opening Price
The IPO listing price is the price set by the stock exchange according to the orders received during the pre-open trading session of the IPO. It is practically the opening price of the IPO shares on the listing day.
The trading commences at 10:00 AM on the listing day, and the shares are traded at this listing price (also called the opening price).