Capital markets regulator Securities and Exchange Board of India (SEBI) has issued new guidelines to manage the stock market impact arising out of market rumours, according to a circular dated May 21.
In a circular released after market hours, SEBI said that it is introducing a concept of ‘unaffected price’ to mitigate the artificial stock price fluctuations.
The regulator explained that the listed company 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.
The new regulations shall be applicable to the top 100 listed companies with effect from June 1, 2024, and to the next 150 entities starting from December 1, 2024. If there is a noticeable change in the stock price due to a rumour, the listed company must verify and respond to these rumours.
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"The unaffected price shall be considered for transactions on which pricing norms specified by SEBI or the stock exchanges are applicable, provided that the rumor pertaining to such transaction has been confirmed within 24 hours from the trigger of material price movement," the SEBI said in the circular.
Unaffected share price refers to the share price level that would have appeared if there was no rumour in the market. SEBI has provided a method to adjust the volume-weighted average price (VWAP). The calculation of VWAP for considering the unaffected price is as follows:
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 and confirmation of the rumour.
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The adjusted daily WAP will be calculated by excluding the 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 is used from the day the material price movement begins until the rumour is confirmed. The adjusted price assures fairness and accuracy in the valuation of transactions that take place around the time of the rumour.
‘’The unaffected price shall be applicable for a period of 60 days or 180 days, as applicable based on the stage of the transaction, from the date of confirmation of the market rumor till the ‘relevant date’ under the existing regulations (public announcement, board approval, etc., as the case may be),'' said SEBI.
According to SEBI, an unaffected price shall be considered for transactions on which pricing norms specified by the SEBI or the stock exchange are applicable, provided that the rumour related to such transactions has been confirmed within 24 hours from the trigger of material price movement.
In addition, 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 company due to the material price movement and confirmation of the rumour.
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