Pricing & Calculation of Frequently Traded Shares under SEBI ICDR Regulations, 2018

Pricing And Calculation Of Frequently Traded Shares Allotted Pursuant To Preferential Issue Under SEBI (Issue of Capital And Disclosure Requirements) Regulations, 2018

Summary: The pricing of equity shares allotted pursuant to a preferential issue is governed by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. This article explains the meaning and calculation of frequently traded shares, including the 240 trading days turnover test, with an illustrative example. It further explains the pricing requirements under Regulation 164 where equity shares have been listed for 90 trading days or more and where they have been listed for less than 90 trading days, including the subsequent recomputation of the issue price. The article also explains the concept of Volume Weighted Average Price (VWAP), its calculation, and the offer-price provisions under Regulation 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Finally, it explains the distinction between Volume Weighted Average Price and Volume Weighted Average Market Price and the circumstances in which each measure is used.

What are Frequently Traded Shares?

“Frequently traded shares” means the shares of the issuer, in which the traded turnover on any recognised stock exchange during the 240 trading days preceding the relevant date, is at least ten percent of the total number of shares of such class of shares of the issuer.

Further, “Traded turnover of shares” means the total number of shares traded on any recognised stock exchange during the specified period.

Illustration for Determining Frequently Traded Shares

To understand this, let us take an illustration:

The volume of shares traded during the period of 240 days preceding the relevant date is, say, 1,38,42,661 shares.

The total number of shares of the said company of the same class is, say, 2,00,00,000 shares.

In this case, the traded turnover comes to:

Traded Turnover = (Total Number of Shares Traded ÷ Total Number of Shares of the Same Class) × 100

= (1,38,42,661 ÷ 2,00,00,000) × 100

= 69.21%

Therefore, since the traded turnover is 69.21%, the shares of this company will come under the category of being frequently traded.

Regulation 164

Where Equity Shares Have Been Listed for 90 Trading Days or More

If the equity shares of the issuer have been listed on a recognised stock exchange for a period of 90 trading days or more as on the relevant date, the price of the equity shares to be allotted pursuant to the preferential issue shall be not less than the higher of the following:

1. the 90 trading days volume weighted average price of the related equity shares quoted on the recognised stock exchange preceding the relevant date; or

2. the 10 trading days volume weighted average price of the related equity shares quoted on the recognised stock exchange preceding the relevant date.

Where Equity Shares Have Been Listed for Less Than 90 Trading Days

If the equity shares of the issuer have been listed on a recognised stock exchange for a period of less than 90 trading days as on the relevant date, the price of the equity shares to be allotted pursuant to the preferential issue shall be not less than the higher of the following:

1. the price at which equity shares were issued by the issuer in its initial public offer or the value per share arrived at in a scheme of compromise, arrangement and amalgamation under Sections 230 to 234 of the Companies Act, 2013, as applicable, pursuant to which the equity shares of the issuer were listed, as the case may be; or

2. the average of the volume weighted average prices of the related equity shares quoted on the recognised stock exchange during the period the equity shares have been listed preceding the relevant date; or

3. the average of the 10 trading days volume weighted average prices of the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date.

Recomputation of Price after Completion of 90 Trading Days

Where the price of the equity shares is determined in terms of sub-regulation (2), such price shall be recomputed by the issuer on completion of 90 trading days from the date of listing on a recognised stock exchange with reference to the 90 trading days’ volume weighted average prices of the related equity shares quoted on the recognised stock exchange during these 90 trading days.

If such recomputed price is higher than the price paid on allotment, the difference shall be paid by the allottees to the issuer.

What is Volume Weighted Average Price?

“Volume weighted average price” means the product of the number of equity shares bought and price of each such equity share divided by the total number of equity shares bought.

Formula for Calculating Volume Weighted Average Price

VWAP = Summation of (Price × Volume) ÷ Summation of Volume

Regulation 8 – Offer Price Pursuant to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Determination of Offer Price

In the case of direct acquisition of shares or voting rights in, or control over the target company, and indirect acquisition of shares or voting rights in, or control over the target company where the parameters referred to in sub-regulation (2) of Regulation 5 are met, the offer price shall be the highest of the following:

1. the highest negotiated price per share of the target company for any acquisition under the agreement attracting the obligation to make a public announcement of an open offer;

2. the volume-weighted average price paid or payable for acquisitions, whether by the acquirer or by any person acting in concert with him, during the fifty-two weeks immediately preceding the date of the public announcement;

3. the highest price paid or payable for any acquisition, whether by the acquirer or by any person acting in concert with him, during the twenty-six weeks immediately preceding the date of the public announcement;

4. the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the date of the public announcement as traded on the stock exchange where the maximum volume of trading in the shares of the target company are recorded during such period, provided such shares are frequently traded;

5. where the shares are not frequently traded, the price determined by an independent registered valuer, taking into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies; and

6. the per share value computed under sub-regulation (5), if applicable.

Valuation Where Shares Are Not Frequently Traded

Where the shares are not frequently traded, the price shall be determined by an independent registered valuer, taking into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies.

Provided that the acquirer and the manager to the open offer shall complete the ongoing valuation assignment which has been undertaken prior to the coming into force of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2025 within a period of nine months from the date of coming into force of the said regulations.

What is the Difference Between Volume Weighted Average Price and Volume Weighted Average Market Price?

Volume Weighted Average Market Price

“Volume weighted average market price” means the product of the number of equity shares traded on a stock exchange and the price of each equity share divided by the total number of equity shares traded on the stock exchange.

Formula:

Volume Weighted Average Market Price = Summation of (Price × Number of Equity Shares Traded) ÷ Summation of Number of Equity Shares Traded

Volume Weighted Average Price

“Volume weighted average price” means the product of the number of equity shares bought and price of each such equity share divided by the total number of equity shares bought.

Formula:

VWAP = Summation of (Price × Number of Equity Shares Bought) ÷ Summation of Number of Equity Shares Bought

Difference Between Volume Weighted Average Price and Volume Weighted Average Market Price

The principal difference between the two concepts is the basis on which the volume is considered.

Volume Weighted Average Price is calculated with reference to the number of equity shares bought and the price paid for such shares.

Volume Weighted Average Market Price is calculated with reference to the number of equity shares traded on a stock exchange and the price at which such shares were traded.

Accordingly, although both calculations involve weighting the price by the volume of shares, the two expressions operate on different transaction bases and should not be treated as interchangeable.