SEBI issues ‘unaffected price’ concept, other guidelines to help mitigate impact of market rumors on stock prices
May 21, 2024
SEBI has introduced a concept of ‘unaffected price’ to mitigate artificial stock price fluctuations.
Capital markets regulator Securities and Exchange Board of India (SEBI) on Tuesday issued a new set of guidelines for reducing the impact of market rumours on stock prices. In a circular released after market hours, SEBI said that it was introducing a concept of ‘unaffected price’ to mitigate the artificial stock price fluctuations.
SEBI explained that the listed entity is required to verify the market rumours upon material price movement. The stock exchanges will issue the framework for material price movement on their respective websites.
According to the SEBI circular, the verification of market rumours will apply to the top 100 listed entities from June 1, 2024, and to the top 250 listed entities (i.e., the next top 150) from December 1, 2024.
"The unaffected price shall be considered for transactions on which pricing norms specified by SEBI or the stock exchanges are applicable, provided that the rumour pertaining to such transaction has been confirmed within 24 hours from the trigger of material price movement," said the market regulator.
SEBI's guidelines for mitigating stock price impact over rumours:
The “unaffected price" will 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. The calculation of adjusted volume weighted average price (VWAP) for considering the unaffected price is as follows:
-The variation in daily WAP from the day of material price movement until the end of the next trading day after the rumour is confirmed shall be attributed to the rumour and its confirmation.
-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.
-The adjusted daily WAP from the day of material price movement till the end of the next trading day after confirmation of the rumour shall be the same as the daily WAP on the trading day preceding the day of material price movement.
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.
"The unaffected price shall be applicable for a period of 60 days or 180 days, as applicable based on the stage of transaction, from the date of confirmation of the market rumour till the ‘relevant date’ under the existing regulations (public announcement, board approval, etc., as the case may be),'' SEBI noted.
Additionally, in order to facilitate the ease of doing business for companies planning initial public offerings (IPOs), SEBI has said any change in the size of offer for sale (OFS) requiring fresh filing will be based on only one of the criteria -- either issue size in rupee or number of shares.
According to SEBI, promoter group entities and non-individual shareholders holding more than five per cent of the post-offer equity share capital can be permitted to contribute towards the shortfall in minimum promoters' contribution (MPC) without being identified as promoters.
Companies promoted by entrepreneurs often have several rounds of funding prior to listing their equity shares on the stock exchanges. In such situations, the promoters' holding may fall short of the minimum promoter contribution i.e., 20 per cent of the post-offer equity share capital.
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