SEBI Introduces New Rules to Tackle Market Rumours and Stabilize Stock Prices

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SEBI Introduces New Rules to Tackle Market Rumours and Stabilize Stock Prices
Credit: © Reuters.

In a bid to curb the impact of market rumours on stock prices, India's market regulator, the Securities and Exchange Board of India (SEBI), has introduced new guidelines. According to a circular issued on May 21, these regulations will initially apply to the top 100 listed companies starting June 1, 2024, and will extend to the next 150 companies from December 1, 2024.

Under the new regulations, listed companies must verify any market rumours that cause a significant movement in their share prices. SEBI mandates that if there's a notable price change, the company must address the rumour within 24 hours. This clarification can take the form of a confirmation, denial, or clarification.

The regulations also introduce the concept of "unaffected price," which refers to the share price that would have prevailed if the rumour had not been in circulation. To determine this unaffected price, SEBI requires the calculation of an adjusted volume-weighted average price (VWAP). This calculation involves excluding the price variations attributed to the rumour from the day of the material price movement until the end of the next trading day after the rumour is confirmed.

SEBI’s circular explains that the pricing for transactions such as preferential issues and open offers will rely on this adjusted VWAP, ensuring a more accurate reflection of the stock’s value devoid of rumor-induced volatility.

Initially slated for implementation in February, these norms were postponed to provide companies with adequate preparation time. From June, the top 100 companies will need to swiftly verify and address market rumours impacting their stock prices, with the top 250 companies required to comply by December.

By implementing these measures, SEBI aims to enhance market integrity and investor confidence by ensuring that significant price movements are based on verified information rather than speculation.

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