Market rumour verification: Sebi issues new price framework

Generally, unaffected price refers to the share price of a company in case there is no market rumour.
File Image of BSE Sensex.
File Image of BSE Sensex. (File | Reuters )

MUMBAI: Amid instances of market rumours resulting in steep movement in share prices, market watchdog Sebi on Tuesday issued a price discovery framework to determine price level for transactions in cases where a listed firm verifies a market rumour within a stipulated time.

The regulator has come up with detailed norms for verifying market rumours that will be applicable for the top 100 listed companies from June 1. Given this comes the new price discovery 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 can impact the overall deal value, the regulator has proposed considering the unaffected price of a stock.

Under the listing norms, Sebi said the 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 firm within 24 hrs from the trigger of material price movement, according to the circular.

“It has been specified that the unaffected price shall be considered by excluding the effect on the price of the equity of the listed entity due to the material price movement and confirmation of the rumour,” the Sebi circular said.

The requirement to verify rumours will be applicable to the top 250 listed entities from December 1. The new framework comes in spite of the fact that there already exists a mechanism for market rumour verification developed by the Industry Standards Forum, which is a body comprising representatives from industry lobbies Ficic, CII and Assocham along with stock exchanges in consultation with Sebi. For considering the unaffected price, Sebi has issued guidelines for the calculation of adjusted volume weighted average price (VWAP).

“The variation in daily VWAP 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,” said the circular.

The adjusted daily VWAP will be calculated by excluding the VWAP variation from the daily VWAP in the look-back period from the day of the material price movement onwards.

In case the price variation due to confirmation of the rumour hits the price band limit on the next trading day after the rumour was confirmed, 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 Sebi said.

The unaffected price will be applicable for 60 or 180 days based on the stage of a transaction, and till the ‘relevant date’ under the existing regulations.

Sebi tweaks norms to value m-cap

MUMBAI: Markets regulator Sebi has revamped the method for calculating the market capitalisation by using the aggregate value of a single day (currently Mar 31), to an average m-cap for a six-month period now.

Sebi said changes are being made since m-cap keeps fluctuating every day based on market dynamics.

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