Sebi has introduced a framework to determine share prices for transactions when listed companies confirm market rumours within a specific timeframe. This aims to address situations where rumours cause significant price fluctuations.
Amid instances of market rumours resulting in steep movement of share prices, the Securities and Exchange Board of India (Sebi) has already issued detailed guidelines for verifying the rumours applicable to the top 100 listed companies from June 1.
Against this backdrop, Sebi has issued the framework for considering “unaffected price for transactions upon confirmation of market rumour”. Generally, unaffected price refers to the share price of a company in case there is no market rumour.
Since sharp price movements could impact the overall value of a transaction, the regulator has proposed considering a scrip’s unaffected price. Under the Listing Obligations and Disclosure Requirements (LODR) Regulations, Sebi said that unaffected prices shall be considered for transactions on which pricing norms specified by it or stock exchanges are applicable.
This requirement is also subject to the rumour pertaining to such a transaction being confirmed by the company within 24 hours from the trigger of material price movement, according to a circular. “It has been specified that the unaffected price shall be considered by excluding the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the rumour,” Sebi said.
The requirement to verify market rumours will be applicable to the top 250 listed entities from December 1. Besides, the Industry Standards Forum (ISF) has formulated industry standards on a pilot basis for effective implementation of market rumour verification under the LODR rules. The ISF — comprising representatives from industry associations ASSOCHAM, FICCI, and CII — along with stock exchanges in consultation with Sebi has formulated the standards.
The industry associations and the stock exchanges will publish the industry standards notes on their websites. For considering the unaffected price, Sebi has issued guidelines for the calculation of adjusted Volume Weighted Average Price (VWAP).
“The variation in daily WAP from the day of material price movement till the end of the next trading day after confirmation of the rumour shall be attributed to the rumour and confirmation of the rumour,” it said in the circular. The adjusted daily WAP will be calculated by excluding the WAP variation from the daily WAP in the look-back period from the day of the material price movement onwards.
According to Sebi, the adjusted daily WAP from the day of material price movement till the end of the next trading day after confirmation of the rumour will be the same as the daily WAP on the trading day preceding the day of material price movement. In case the price variation due to confirmation of the rumour hits the price band limit on the next trading day post rumour confirmation, the price variation in the subsequent trading days should be included for adjustment till such day the price does not hit the band limit.
The unaffected price will be applicable for a period of 60 days or 180 days based on the stage of a transaction, from the date of confirmation of the market rumour till the ‘relevant date’ under the existing regulations. The stages of transaction and applicability period of the unaffected price will be specified in the industry standards.
The concept of unaffected price will be applicable for each instance of rumour confirmation depending on various scenarios. This will be applicable if a rumour pertaining to a transaction has been confirmed by the listed entity and subsequent rumours are reported in the mainstream media with the material update to the transaction that requires confirmation under the LODR regulations.
Regarding the framework for verifying market rumours, Sebi has already amended various regulations. On May 17, Sebi tweaked rules governing insider trading, whereby unverified events or information reported in print or electronic media will not be considered as generally available information.
Generally available information means the information that is accessible to the public on a non-discriminatory basis. Also, the watchdog modified the takeover as well as buyback norms.
As per Sebi, the effect on the price of the equity shares of the target company due to material price movement and confirmation of reported events or information may be excluded while determining the open offer price.
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