SEBI issues concept of ‘unaffected pricing’ and other guidelines to help mitigate impact of market rumors on stock prices

Capital markets regulator Securities and Exchange Board of India (SEBI) on Tuesday issued a new set of guidelines aimed at reducing the impact of market rumors on stock prices. In a circular issued after trading hours, SEBI said it was introducing a concept of ‘unaffected pricing’ to mitigate artificial fluctuations in share prices.

SEBI explained that the listed entity is required to check market rumors in case of significant price movement. The exchanges will publish the framework of significant price movements on their respective websites.

According to the SEBI circular, the market rumor check will apply to the top 100 listed entities from June 1, 2024 and to the top 250 listed entities (i.e. the next top 150) from December 1, 2024.

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“The unallocated price will be considered for transactions on which the pricing norms specified by SEBI or the stock exchanges are applicable, provided that the rumor regarding such transaction has been confirmed within 24 hours of the initiation of a movement important prices,” said the market regulator.

SEBI Guidelines to Mitigate the Impact of Rumors on Stock Prices:

The “unaffected price” will be considered excluding the effect on the stock price of the listed entity due to significant price movement and confirmation of the rumor. The calculation of the volume weighted average price (VWAP) adjusted to take into account the unallocated price is as follows:

-The change in daily WAP from the day of significant price action until the end of the next trading day after the confirmation of the rumor will be attributed to the rumor and its confirmation.

-The adjusted daily WAP will be calculated by excluding the change in WAP from the daily WAP during the lookback period starting from the day of material price movement.

-The adjusted daily WAP from the day of the significant price movement until the end of the trading day following confirmation of the rumor will be the same as the daily WAP of the trading day preceding the day of the significant price movement prices.

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The unaffected price will be applicable for a period of 60 or 180 days, depending on the stage of the transaction, from the date of confirmation of the market rumor until the “relevant date” according to current regulations.

The stages of the transaction and the period of applicability of the unallocated price will be specified in industry standards. The concept of unaffected price will be applicable for each instance of rumor confirmation based on various scenarios.

“The unaffected price will be applicable for a period of 60 days or 180 days, as the case may be, depending on the stage of the transaction, from the date of confirmation of the market rumor until the “relevant date” in under existing regulations (public announcement, board approval, etc., as applicable),” SEBI noted.

Additionally, in order to make doing business easier for companies planning initial public offerings (IPO)SEBI said any change in the size of the offer for sale (OFS) requiring a fresh filing will be based on only one of the criteria: either the size of the issue in rupee terms or the number of shares.

According to SEBI, promoter group entities and non-individual shareholders holding more than five per cent of the post-offer share capital may be allowed to contribute towards the minimum promoter contribution (MPC) shortfall without being identified as promoters.

Companies promoted by entrepreneurs often have several rounds of financing before listing their shares on the stock exchange. In such situations, the promoters’ participation may not reach the minimum promoter contribution of 20 per cent of the post-offer share capital.