SEBI issues norms for managing stock price impact from market rumour

Capital markets regulator Securities and Exchange Board of India (SEBI) has issued a framework for considering “unaffected price” for transactions upon the confirmation of “market rumour”.

In the latest circular, SEBI says the unaffected price will be considered for transactions on which pricing norms specified by it or the stock exchanges are applicable. The unaffected price will be considered if the rumour about such a transaction is confirmed within 24 hours from the trigger of material price movement. The framework, says SEBI, has been formulated by the Industry Standards Forum (“ISF”) comprising representatives from three industry associations -- ASSOCHAM, CII and FICCI, under the stock exchanges, on a pilot basis to facilitate ease of doing business. SEBI has asked listed entities to follow these industry standards to ensure compliance.

Further, it has been specified that the “unaffected price” will be considered by excluding the effect on the equity share price of the listed entity due to the material price movement and confirmation of the rumour.

Accordingly, the framework for considering unaffected prices will be applicable to the top 100 listed entities with effect from June 01, 2024, and to the top 250 listed entities (i.e., the next top 150) with effect from December 01, 2024.

How to calculate the adjusted volume weighted average price (VWAP) for considering the unaffected price?

According to SEBI, 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 will 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.”

In case the price variation due to confirmation of the rumour hits the “price band limit” on the next trading day post rumour confirmation, the price variation in the subsequent trading days will be included for adjustment till such day the price does not hit the band limit.

The unaffected price will be applicable only if the listed entity has “confirmed the rumour” pertaining to the transaction within 24 hours from the trigger of material price movement.

The unaffected price will be applicable for 60 days or 180 days, as applicable based on the stage of the transaction, from the date of confirmation of the market rumour till the ‘relevant date’ under the existing regulations.

If rumour pertaining to a transaction is confirmed by the listed entity and subsequent rumour(s) are reported in the mainstream media with material update to the transaction, which require confirmation, then the unaffected price will be applicable for each instance of confirmation of rumour, says SEBI.