As of May 21, the Securities and Exchange Board of India (SEBI) has introduced new guidelines to manage stock price impacts stemming from market rumours.
SEBI’s Unaffected Price Guidelines to Mitigate Stock Price Fluctuations
Part of the updated SEBI Regulations, 2015, these guidelines shall be implemented for the top 100 listed entities starting June 1, 2024, and for the next 150 entities beginning December 2024.
With the aim to mitigate artificial stock price fluctuations, SEBI has put forth a concept called as unaffected price.
Under this, if a significant price movement occurs due to a rumour, the listed entity must verify and respond to it.
The stock exchanges will provide a framework for identifying material price movements on their websites.
“Unaffected price” is the price of the stock that would exist in the market when there are no rumours affecting the market.
This price will be used for transactions where SEBI or stock exchange pricing norms apply, provided the rumor is confirmed within 24 hours of the material price movement.
As per the regulator, the unaffected price is determined by excluding the price impact caused by the material price movement and the rumour’s confirmation.
In the case where the price variation hits the price band limit due to the rumour confirmation on the following trading day, adjustments will continue in subsequent days until the price stabilizes within the band limit.
SEBI’s Guidelines for Accurate VWAP Calculation Amid Market Rumors
Ensuring that it is reflective of current market conditions accurately, the adjusted daily Volume-Weighted Average Price (VWAP) is calculated from the onset of the material price movement until slightly after the rumour is verified.
This method prevents potential losses due to delayed reactions to price changes.
For the open offer price determination, the VWAP from the 60 days preceding the announcement is used. The adjusted VWAP calculation involves:
1. Crediting the difference in daily WAP from the material price change day until the end of the next trading day post-rumor confirmation to the rumor and its confirmation.
2. Calculating the adjusted daily WAP by removing the change from the previous day’s WAP, starting from the material price movement date.
3. Using this adjusted price for subsequent days to determine an unaffected VWAP for relevant transactions.
The regulatory body also stated that the industry associations, including Assocham, FICCI, and CII, along with stock exchanges, will publish these standards on their websites.
