SEBI issues ‘unaffected price’ concept, other guidelines for managing stock price impact from market rumors

Capital markets regulator Securities and Exchange Board of India (SEBI) issues new guidelines for managing stock price impact emerging from market rumors. In a circular released on Tuesday, May 21 after market hours, SEBI said that it is introducing a concept of ‘unaffected price’ in order to mitigate the artificial stock price fluctuations.

SEBI explained that the listed entity is required to verify the market rumors, upon material price movement. The stock exchanges will issue the framework for material price movement on their respective websites.

The verification of market rumors will be applicable to top 100 listed entities with effect from June 01, 2024 and to top 250 listed entities (i.e., next top 150) with effect from December 01, 2024, according to the SEBI circular.

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‘’The unaffected price shall be considered for transactions on which pricing norms specified by SEBI or the stock exchanges are applicable, provided that the rumor pertaining to such transaction has been confirmed within 24 hours from the trigger of material price movement,” said the market regulator.

The unaffected price will be considered by excluding the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the rumor. The calculation of adjusted volume weighted average price (VWAP) for considering the unaffected price is as follows:

-The variation in daily WAP from the day of material price movement till the end of the next trading day after confirmation of the rumor shall be attributed to the rumor and confirmation of the rumor.

-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 rumor shall be same as the daily WAP on the trading day preceding the day of material price movement.

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‘’The unaffected price shall be applicable for a period of 60 days or 180 days, as applicable based on the stage of transaction, from the date of confirmation of the market rumor till the ‘relevant date’ under the existing regulations (public announcement, board approval, etc., as the case may be),” said SEBI.

Additionally, in order to facilitate the ease of doing business for companies planning initial public offerings (IPOs), SEBI has said any change in the size of offer for sale (OFS) requiring fresh filing will be based on only one of the criteria — either issue size in rupee or number of shares.

The promoter group entities and non-individual shareholders holding more than five per cent of the post-offer equity share capital can be permitted to contribute towards the shortfall in minimum promoters’ contribution (MPC) without being identified as a promoter, according to SEBI.

Companies promoted by entrepreneurs often have several rounds of funding prior to listing their equity shares on the stock exchanges. In such situations, the promoters’ holding may fall short of the minimum promoter contribution i.e., 20 per cent of the post-offer equity share capital.