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Sebi Protects Stock Prices From Rumours

By Khushboo Tiwari
May 22, 2024 09:47 IST
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The change will help companies address market rumours without being worried about the impact on deal pricing.

Photograph: Francis Mascarenhas/Reuters

The Securities and Exchange Board of India on Tuesday, May 21, 2024, detailed a framework for around 'unaffected price' to calculate pricing for takeovers, buybacks, preferential issues and other such transactions.

The framework is part of the new rumour verification norms that kick in from June 1.

The market regulator has said the 'unaffected price' rule will be applicable only if the listed entity has confirmed the rumour related to the transaction within 24 hours from the trigger of material price movement.

Under the new framework, the weighted average price (WAP) variation will be excluded while calculating the takeover pricing from the day of the material price movement till the next trading day after confirmation of the rumour.

The objective is to exclude any price disruption caused by market rumours while calculating the acquisition price during an acquisition.

'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 shall be included for adjustment till such day the price does not hit the band limit,' said Sebi.

The change will help companies address market rumours without being worried about the impact on deal pricing, believe legal experts.

"The newly introduced price protection framework is a welcome and a much needed move. It will effectively isolate the transacting parties from unexpected price volatility on the back of market leaks, and at the same time enable more transparent information flow in the market," said Abhishek Dadoo, Partner, Khaitan & Co.

The fine print
  • Price protection framework to address stock impact due to rumours.
  • 'Unaffected price' to be considered for pricing deals, transactions only if company confirms rumour within 24 hours.
  • The day stock sees impact due to a report, followed by the day when company confirms rumour, and the next trading day to be excluded when calculating volume-weighted average price.
  • Unaffected price applicable for 60 days or 180 days after confirmation, depending on the stage of transaction.
  • These norms come into effect from June 1.

Sebi tweaks method for calculating market cap rankings

Sebi has changed the methodology for calculating market capitalisation-based rankings of listed companies.

Instead of a single-day market cap, the rankings will now be based on the average market cap for six months.

The regulator has directed stock exchanges to do the computation at the end of the calendar year and prepare the rankings based on the average market cap from July 1 to December 31.

Till now, the computation was done on the basis of market cap on March 31.

The rankings are important for compliance to several mandates and regulations.

For instance, top 100 listed companies have to comply with rumour verification norms from June 1, while the compliance deadline for the top 250 is from December 1.

Similarly, for compliance to ESG-related norms and corporate governance matters, Sebi has a glide path for top 100, top 500, and top 1000 listed companies based on the market-cap wise ranking.

Sebi received representations from market stakeholders that calculating the market capitalisation as of a single day and consequent application of relevant Sebi Listing Obligations and Disclosure Require ments (LODR) Regul ations led to an increase in compliance burden for listed companies, said Abhimanyu Bhattacharya, Partner, Khaitan & Co.

Following the new rankings, any company that becomes liable to comply with any such mandate by the regulator for the first time will be provided a three-month window to comply.

For such listed entities which remain outside the applicable threshold for a period of three consecutive years in terms of this regulation, the provisions that apply on the basis of criteria of market capitalisation shall cease to apply at the end of the financial year following the December 31 of the third consecutive year, said Sebi in the notification.

Feature Presentation: Aslam Hunani/

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Khushboo Tiwari
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