The Securities and Exchange Board of India (SEBI) has issued a new circular outlining the framework for calculating the unaffected price in transactions influenced by market rumours. This directive, detailed in circular SEBI/HO/CFD/CFD-PoD-2/P/CIR/2024/51 dated May 21, 2024, comes into effect from June 1, 2024, for the top 100 listed entities and from December 1, 2024, for the next top 150 listed entities. This framework is crucial for maintaining market integrity and ensuring transparent price discovery.
Detailed Analysis
Background and Purpose
Regulation 30(11) of SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, mandates listed entities to verify market rumours that lead to significant price movements. The recent amendment to these regulations emphasizes the need for a robust framework to determine an unaffected price when such rumours are confirmed within 24 hours of the price trigger. This unaffected price is pivotal in safeguarding market fairness and investor interests by excluding the artificial price inflation caused by rumours.
Framework for Calculating Unaffected Price
The framework involves a detailed method to adjust the Volume Weighted Average Price (VWAP) by excluding the effects of market rumours and their confirmation. The calculation steps are as follows:
1. WAP Variation Calculation:
- Identify the variation in the daily Weighted Average Price (WAP) from the day of material price movement to the next trading day after the rumour confirmation. This variation is attributed to the rumour and its confirmation.
2. Adjusted Daily WAP:
- Exclude the identified WAP variation from the daily WAP during the look-back period starting from the day of material price movement. The adjusted daily WAP from the day of the price movement to the next trading day post-rumour confirmation should be the same as the daily WAP on the trading day preceding the material price movement.
3. Adjusted VWAP Calculation:
- Use the adjusted daily WAPs to compute the adjusted VWAP for the look-back period.
The framework also includes provisions for handling price variations that hit price band limits and specifies that the unaffected price remains applicable for either 60 or 180 days based on the transaction stage. Notably, if multiple rumours about the same transaction are confirmed, each confirmation resets the unaffected price applicability period.
Illustrative Example
SEBI provides a comprehensive example to elucidate the calculation process. For instance, if a rumour confirmed on July 28, 2023, affects the price from July 27 to July 31, the adjusted daily WAP for these days will be set to the WAP of July 26. Further adjustments follow the methodology to ensure the calculated unaffected price excludes artificial price inflation due to rumours.
Compliance and Implementation
The stock exchanges are instructed to disseminate this circular’s content and ensure compliance among listed entities. The detailed framework is available on SEBI’s official website under the ‘Legal → Circulars’ section.
Conclusion
SEBI’s new framework for calculating the unaffected price in the wake of market rumours marks a significant step towards enhancing market transparency and protecting investor interests. By systematically excluding the influence of rumours on stock prices, this regulation aims to ensure fair and accurate price discovery in the Indian securities market. The phased implementation starting from June 2024 provides ample time for listed entities to adapt to these crucial regulatory changes.
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Securities and Exchange Board of India
Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2024/51 Dated: May 21, 2024
To,
All listed entities
All the recognized Stock Exchanges
Dear Sir/Madam,
Sub: Framework for considering unaffected price for transactions upon confirmation of market rumour
1. In terms of Regulation 30(11) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), as amended by SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2024 (link), listed entity is required to verify market rumours, upon material price movement. The stock exchanges shall issue the framework for material price movement on their websites.
2. As per second proviso to Regulation 30(11) of LODR Regulations, 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. Accordingly, the framework for considering unaffected price is placed as ANNEXURE to this circular and the same shall be applicable to top 100 listed entities with effect from June 01, 2024 and to top 250 listed entities (i.e., next top 150) with effect from December 01, 2024.
3. The Stock Exchanges are advised to bring the contents of this circular to the notice of their listed entities and ensure its compliance.
4. This circular is issued in exercise of the powers conferred under Section 11(1) and 11A of the Securities and Exchange Board of India Act, 1992 read with regulation 101 of LODR Regulations.
5. This circular is available on SEBI website at sebi.gov.in under the category: ‘Legal → Circulars’.
Yours faithfully,
Raj Kumar Das
Deputy General Manager
Corporation Finance Department
Tel. No.: +91 22 2644 9253
Email id: rajkd@sebi.gov.in
ANNEXURE
FRAMEWORK FOR CONSIDERING UNAFFECTED PRICE
1. The calculation of adjusted volume weighted average price (“VWAP”) for considering unaffected price is given below:
1.1. The variation in daily WAP from the day of material price movement till the end of the next trading day after confirmation of the rumour shall be attributed to the rumour and confirmation of the rumour (“WAP variation”).
1.2. The adjusted daily WAP shall be calculated by excluding the WAP variation from the daily WAP in the look back period from the day of the material price movement onwards. The adjusted daily WAP from the day of material price movement till the end of the next trading day after confirmation of the rumour shall be same as the daily WAP on the trading day preceding the day of material price movement.
1.3. The adjusted VWAP for the look back period shall be calculated based on the adjusted daily WAP calculated as mentioned at para 1.1 and 1.2 above, and as illustrated below.
2. Illustration for calculation of VWAP under the above proposed framework in case of preferential issue to qualified institutional buyers (QIBs) under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 is given in the table below:
Table 1: Illustration for calculation of VWAP
| Trading Day
(A) |
Daily WAP(B) |
Adjusted Daily WAP(C) |
No. of Shares traded (D) |
Remarks (E) |
| 20-Jul | 1,045.06 | 1,045.06 | 47,004 | |
| 21-Jul | 1,053.26 | 1,053.26 | 24,750 | |
| 24-Jul | 1,047.07 | 1,047.07 | 37,262 | T-10 |
| 25-Jul | 1,054.90 | 1,054.90 | 15,000 | |
| 26-Jul | 1,060.76 | 1,060.76 | 44,519 | |
| 27-Jul | 1,164.47 | 1,060.76 | 7,60,853 | Date of material price movement |
| 28-Jul | 1,173.45 | 1,060.76 | 2,38,320 | Date of rumour confirmation |
| 31-Jul | 1,178.90 | 1,060.76 | 88,450 | Next trading day after rumour confirmation |
| 01-Aug | 1,173.16 | 1,055.02 | 68,613 | |
| 02-Aug | 1,165.71 | 1,047.57 | 41,954 | |
| 03-Aug | 1,163.36 | 1,045.23 | 56,267 | |
| 04-Aug | 1,212.36 | 1,094.23 | 5,99,197 | T-1 |
| 07-Aug | 1,208.33 | 1,090.20 | 1,08,762 | Relevant Date (T) – Date of Board approval to preferential issue to QIBs |
2.1. The variation in daily WAP (in column B) from the day of material price movement (July 27, 2023) till the end of the next trading day after confirmation of the rumour (July 31, 2023) is the VWAP variation. The WAP variation is Rs. 118.14.
2.2. Adjusted daily WAP (in column C) has been calculated from the day of material price movement onwards (i.e. from July 27, 2023). The adjusted daily WAP from the day of material price movement (July 27, 2023) till the end of the next trading day (July 31, 2023) after confirmation of the rumour is same as the daily WAP on the trading day preceding the day of material price movement (i.e. July 26, 2023) viz. Rs. 1060.76.
2.3. Adjusted daily WAP (in column C) from August 1, 2023 onwards has been calculated by subtracting the WAP variation (i.e. Rs. 118.14) from the daily WAP.
2.4. VWAP in the look back period (T-1 to T-10) calculated under existing ICDR Regulations using the daily WAP is Rs. 1,175.78. Adjusted VWAP in the look back period (T-1 to T-10) calculated using the adjusted daily WAP is Rs. 1,069.80.
3. 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.
4. The unaffected price shall be applicable only if the listed entity has confirmed the rumour pertaining to the transaction within 24 hours from the trigger of material price movement.
5. The unaffected price shall be applicable for a period of 60 days or 180 days, as applicable based on the stage of transaction, from the date of confirmation of the market rumour till the ‘relevant date’ under the existing regulations (public announcement, board approval, etc., as the case may be). The stages of transaction and applicability period of the unaffected price shall be specified in the Industry Standards on Regulation 30(11) of LODR Regulations.
6. In case rumour pertaining to a transaction has been confirmed by the listed entity and subsequent rumour(s) are reported in the mainstream media with material update to the transaction which require confirmation under Regulation 30(11) of LODR Regulations, then the unaffected price shall be applicable for each instance of confirmation of rumour. The following illustration is given for clarity:
6.1. In the illustration given in Table 1 above, the rumour has been confirmed on July 28, 2023 and the unaffected price calculated is applicable till September 26, 2023 (i.e. 60 days from the confirmation of the rumour, based on the stage of the transaction).
6.2. Subsequently, rumour pertaining to the same transaction may be reported in the mainstream media with material update to the transaction which require confirmation under Regulation 30(11) of LODR Regulations. The unaffected price subsequent to confirmation of rumour on, say August 28, 2023 shall be applicable till October 27, 2023 (i.e. 60 days from the confirmation of the rumour, based on the stage of the transaction).
6.3. The different scenarios for applicability of unaffected price are illustrated in the table below:
Table 2: Illustration for applicability of unaffected price
| S. No. |
Relevant date (i.e. Date of approval by board of directors to preferential issue to QIBs) |
Applicability of unaffected price for the rumour confirmation on July 28, 2023 |
Applicability of unaffected price for the rumour confirmation on August 28, 2023 |
| 1. | July 29, 2023 to August 28, 2023 |
Applicable | Not applicable |
| 2. | August 29, 2023 to September 26, 2023 |
Applicable | Applicable |
| 3. | September 27, 2023 to October 27, 2023 | Not applicable | Applicable |
| 4. | October 28, 2023 onwards |
Not applicable | Not applicable |
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