Under the SebiUnder the rule, these companies will have to “confirm, deny or clarify any event or information reported in the mainstream media that is not of a general nature and that indicates that rumors of a specific impending material event” are circulating among the investing public within 24 hours of the information being released.
Sebi through its new launch rumor verification framework excluded the price volatility to arrive at the average market price for the purposes of corporate actions in order to make it fair for all investors at liberty.
“This measure would help deter the leakage of information that could affect the assessment in the action of the given company. This initiative of the Sebi would help in strengthening the framework for verification of rumours. It would help in achieving a fair market making it a preferred market for investors from around the world,” said Makarand M Joshi, Founder, MMJC and Associatesa corporate compliance firm, said.
When calculating the price of various corporate actions such as buyback by bookbuilding, stock exchange buyback, qualified institutional placement, preferential allocation, takeovers, the effect on the stock price due to a significant price movement and the confirmation of an event or reported information may be excluded.
This means that when calculating the price of company shares, the period during which a significant price movement was observed in the stock due to confirmed rumors would be excluded. Market rumors relating to a company’s activity can create significant volatility stock priceoften leading to transactions that do not reflect the true value of a company. These market rumors can be related to anything, including the departure of senior management, cancellation of an order and financial health.
“The Sebi framework addresses this issue by establishing a mechanism to determine the unaffected price – the price of a stock before the rumour surfaced. This price would be used for trading unless the rumour itself causes price fluctuations in subsequent trading days,” said Trivesh, chief operating officer of Tradejinihad said.