The secondary market advisory committee of the Securities and Exchange Board of India is considering a proposal to require issuers to vary the face value of the shares in relation to the market price.

Sources familiar with the development said this was being proposed to align the face value of shares with secondary market price movements.

Last month, Sebi's primary market committee had placed restrictions on the splitting of shares and had said issuers had the freedom to set the face value of their shares only when the issue price was Rs 500 and above. For an issue price of below Rs 500 per share, the face value has to be necessarily Rs 10.

In order to compute the market price, the secondary market advisory committee has suggested a six-month average of the prices prior to the date from which it is calculated.

According to the sources, this means that each time the market price of any stock falls below Rs 500, the company will necessarily have to change its face value (assuming it is different) to Rs 10.

"Changing the face value means that the company will have to approach its shareholders and get the move ratified," said an official.

Sebi was prompted to change its primary market guidelines with the intention of restricting the pre-IPO splitting of shares. Issuers split shares into lower denominations with the intention of getting small investors interested in such issues, since it makes such shares affordable and thus creates more liquidity.

Market sources said those stocks that trade perpetually above Rs 500, would not be impacted by this, "unless there is a huge swing in the market".

However, there are a good number of mid-cap to large-cap stocks which fluctuate around the Rs 500-mark and these are the ones to be impacted by this recommendation if it goes through.

Reacting to this move, analysts said that the recommendation is an attempt to peg the face value of the shares at Rs 10, especially for those stocks which come within the mid-cap category.

"It is an indirect way of regulating and imposing a fixed price on the shares," they said. Incidentally, the Sebi regulations have also imposed a floor price of Re 1 per share, that is, the face value of the share cannot go below Re 1.

Members of the committee have also been pushing for doing away with the concept of a face value altogether on the basis that it has no relevance in the current context.

In sum Each time the market price of any stock falls below Rs 500, the company will have to change its face value (assuming it is different) to Rs 10. Stocks that trade perpetually above Rs 500, will not be impacted by this, unless there is a huge swing in the market.