The Securities and Exchange Board of India on Tuesday issued new clarifications to manage how market rumours affect stock prices, especially for transactions with specific pricing rules. These new rules are part of the SEBI Regulations, 2015, which were updated this year.
The regulator explained that if there's a noticeable change in the stock price due to a rumour, the listed company must verify and respond to these rumours.
A crucial aspect of this new regulation is the concept of the "unaffected price". This is particularly relevant for transactions that must follow SEBI or stock exchange pricing guidelines. The unaffected price is essentially the stock price that would have existed if the rumour had not affected the market. To use this price, the company must confirm the rumour within 24 hours of the material price movement.
By doing this, SEBI aims to exclude the artificial inflation or deflation of stock prices, caused by rumours from any critical financial transactions.
To determine the unaffected price, SEBI has provided a method to adjust the volume-weighted average price. This involves calculating the daily weighted average price and then excluding the variations caused by the rumour. The adjusted daily WAP is used from the day the material price movement begins, until the rumour is confirmed and slightly beyond. This adjusted price helps maintain fairness and accuracy in the valuation of transactions that take place around the time of the rumour.
SEBI's detailed example helps clarify how this adjusted VWAP is calculated. For instance, if a significant price movement occurs on July 27 and the rumour is confirmed on July 28, the adjusted daily WAP would be based on the price from July 26. This adjusted price is used for subsequent days to calculate an unaffected VWAP, which then applies to any relevant transactions.
The new framework will be implemented in phases. It will first apply to the top 100 listed companies from June 1, and then to the top 250 companies from Dec. 1. This phased implementation allows companies and exchanges to adapt to the new requirements progressively.
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