Sebi issues new guidelines to manage stock prices impacted due to rumours

Capital markets regulator SEBI has issued a fresh set of guidelines for managing stock price impact emerging from market rumours. The circular, issued on May 21, said that the capital markets regulator will introduce a concept of ‘unaffected price’ in order to mitigate the artificial stock price fluctuations.  These new rules are part of the SEBI Regulations, 2015, which were updated this year. 

The regulations shall be applicable to the top 100 listed entities with effect from June 1, 2024, and on the next 150 entities starting from December 2024. SEBI has said that the listed entity is required to verify the market rumours, upon material price movement. The stock exchanges will issue the framework for material price movement on their respective websites. 

The regulator further said that if there is a noticeable change in the stock price due to a rumour, the listed company must verify and respond to these rumours. 

"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," the capital market regulator said.

Unaffected price means the share price level that would have appeared if there was no rumour in the market, Sebi in another circular.

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

Further, it has been specified that the unaffected price shall 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 rumour.

“In case the price variation due to confirmation of the rumour hits the price band limit on the next trading day post-rumour confirmation, the price variation in the subsequent trading days shall be included for adjustment till such day the price does not hit the band limit,” said Sebi.

The adjusted daily WAP is applied when material price movement starts until the rumor is verified and slightly after. It helps reflect current market conditions accurately. This method ensures timely adjustments and prevents potential losses due to delayed reactions to price changes.

Using the volume-weighted average 60 days before the announcement is an essential formula to figure out open offer price.

Here's how the calculation of adjusted volume weighted average price (VWAP) for considering the unaffected price will be done:

> The difference in daily WAP from the day of material price change until the close of the following trading day post rumour confirmation is credited to the rumor and its confirmation.

> The adjusted daily WAP will be calculated by removing the WAP change from the previous day's WAP starting from the material price movement date.

>  This adjusted price is used for subsequent days to calculate an unaffected VWAP, which then applies to any relevant transactions. 

The regulator said industry associations that are part of the Industry Standards Forum (Assocham, FICCI, and CII) and the stock exchanges will publish the standards notes on their websites.