Sebi Introduces Concept Of 'Unaffected Price' In Framework For Market Rumour-Verification

Sebi released a framework for listed companies to verify market rumours and introduced the concept of unaffected price to protect share price from a delayed reaction to market rumours
Sebi Introduces Concept Of 'Unaffected Price'
Sebi Introduces Concept Of 'Unaffected Price'

To facilitate ease of business, and protect stock prices from volatility arising out of market rumours, the Securities and Exchanges Board of India (Sebi) has issued new guidelines in which a concept of ‘unaffected price’ is presented. In a circular on May 21, 2024, Sebi reiterated that listed companies must verify and respond to market rumours when stock price changes occur due to rumours.

Key Points of Sebi Circular

From June 1, 2024, Sebi mandated that the top 100 listed entities must verify market rumours when there are material changes in stock prices due to rumours. By December 1, 2024, the top 250 listed entities by market capitalisation should also follow suit.

In another circular, Sebi stated that the average market capitalization over six months will now be used to determine market cap. This change aims to provide a more accurate reflection of a company’s size by accounting for daily market fluctuations. Previously, Sebi's guideline was that companies use the market capitalization of a single day (March 31) of the previous fiscal year to determine their value.

Companies need to confirm, deny, or clarify market rumours disseminated through any form of media within 24 hours of their dissemination, as per Sebi's circular. IF left unchecked market rumours can disrupt the securities market and harm investors. Additionally, companies should provide regular updates on material developments until the event is resolved.

Unaffected Price Concept

To reduce the impact of artificial stock price fluctuations, Sebi introduced the concept of an "unaffected price," which means the share price level there would have been no rumour impacts. This unaffected price will be used for transactions "on which pricing norms specified by SEBI or the stock exchanges are applicable, provided that the rumour about such transaction has been confirmed within 24 hours from the trigger of material price movement."

An adjusted volume-weighted average price (VWAP) would be used for this in which weighted unaffected prices would be calculated in which the variation in daily WAP from the day of material price movement until the end of the next trading day after confirmation of the rumour shall be attributed to the rumour.

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