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 rumor 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 Tradejinisaid.
In its circular on Tuesday, Sebi has laid out the framework for calculating the volume weighted average price (VWAP) adjusted to take into account unaffected prices in transactions. The guidelines also mandate that the adjusted VWAP be calculated excluding price movements attributable to rumour, thereby reflecting the value of the stock before the market reaction to the rumour. The objective is to exclude price disruptions caused by rumours while determining the acquisition price. Generally, unaffected price refers to the share price of a company in the absence of rumour. market rumor. Since sudden price movements could impact the overall value of a transactionThe regulator suggested considering the unaffected price of a security.
Under the Listing Obligations and Disclosure Requirements (LODR) Regulations, unaffected prices must be considered for transactions to which pricing standards specified by it or the exchanges apply. This requirement is also subject to the company confirming the rumour of such transaction within 24 hours of the triggering of the significant price movement.
This rapid confirmation helps to curb prolonged speculation and provides clarity to investors, said the deputy general manager of The wealth of Anand Rathi said Feroze Azeez.
The requirement to verify market rumors will apply to the top 100 listed companies from June 1 and to the top 250 listed entities from December 1.
Azeez added that the main objective of this framework is to ensure that the prices of shares used in transactions are not artificially influenced by speculative activity in the market. Sebi aims to lay out a more precise and more fair price mechanism, by identifying and excluding WAP variation caused by rumors.
This approach helps mitigate the risks associated with price manipulation and ensures that transactions are based on their true value.
The unaffected price will be applicable for a period of 60 days or 180 days depending on the stage of a transaction, from the date of confirmation of the market rumor until the “relevant date” according to the regulations in force.
Tradejini’s Trivesh said the new guidelines offer several benefits such as reduced market manipulation, fair valuations and increased investor confidence.