SEBI Introduces Unaffected Price Framework for Share Transactions Post-Rumour Verification

In a significant move to stabilize the stock market, the Securities and Exchange Board of India (Sebi) introduced a new framework on Tuesday aimed at determining the share price level for transactions in scenarios where a listed company confirms a market rumour within a designated timeframe. This development comes against the backdrop of instances where market rumours have led to abrupt share price movements, prompting Sebi to establish detailed norms for rumour verification. These norms are set to be enforced for the top 100 listed companies starting June 1.

Representative image

Sebi's latest framework outlines the consideration of an 'unaffected price' for transactions following the confirmation of a market rumour. The term 'unaffected price' refers to the share price of a company in the absence of any market rumours. This measure aims to mitigate the impact of sharp price fluctuations on the overall value of a transaction. According to Sebi's circular, this requirement falls under the Listing Obligations and Disclosure Requirements (LODR) Regulations, where unaffected prices will be considered for transactions subject to pricing norms specified by Sebi or stock exchanges.

The circular further clarifies that this requirement is contingent upon the company confirming the rumour related to the transaction within 24 hours from when significant price movement is triggered. Sebi specifies that the unaffected price should be determined by excluding the impact of material price movement and confirmation of the rumour on the equity shares' price.

Expanding its reach, Sebi announced that from December 1, the requirement to verify market rumours will apply to the top 250 listed entities. Additionally, in collaboration with industry associations such as ASSOCHAM, FICCI, and CII, and stock exchanges, the Industry Standards Forum (ISF) has developed industry standards on a pilot basis for effective implementation of market rumour verification under LODR rules. These standards will be made available on the websites of industry associations and stock exchanges.

To facilitate consideration of the unaffected price, Sebi has also issued guidelines for calculating an adjusted Volume Weighted Average Price (VWAP). This adjustment involves attributing variation in daily VWAP from the day of material price movement until the end of the next trading day after rumour confirmation to the rumour itself. The adjusted daily VWAP will mirror the daily VWAP on the trading day preceding significant price movement.

In instances where price variation due to rumour confirmation reaches the price band limit on the subsequent trading day, adjustments will include price variations in following trading days until such variation does not hit the band limit. The applicability period for unaffected prices will span either 60 or 180 days from rumour confirmation, depending on the transaction stage, as specified in industry standards.

Sebi's initiative extends to various scenarios where a transaction-related rumour is confirmed by a listed entity, including subsequent rumours reported in mainstream media that necessitate confirmation under LODR regulations. This approach is part of Sebi's broader efforts to amend regulations governing insider trading and modify takeover as well as buyback norms. As per these amendments made on May 17, generally available information now excludes unverified events or information reported in print or electronic media, thereby excluding their impact on equity share prices while determining open offer prices.