Market Rumor Verification: Experts Say Sebi Guidelines Will Aid In Fair M&A and Buyback Pricing

Experts said on Wednesday that speculative market activity would not unfairly affect the share price utilized in mergers and acquisitions (M&A), buybacks, and other transactions, according to Sebi’s new rules for controlling the stock price effect resulting from rumors in the market.

Market rumors about a firm’s operations have the potential to significantly affect stock price volatility and often result in deals that undervalue the company.

The market rumors might be about anything, such as top management leaving, an order being canceled, or financial stability.

In order to solve this problem, Sebi’s framework established a method to ascertain the unaffected price, or the stock’s price, prior to the rumor becoming public.

Tradejini’s Chief Operating Officer, Trivesh, said, “This price would be used for transactions unless the rumor itself caused price fluctuations in subsequent trading days.”

Sebi provided the methodology for determining the modified volume weighted average price (VWAP) for taking unaffected prices in transactions in its circular on Tuesday.

In order to represent the stock’s worth prior to the market’s response to the rumor, the rules also require that the adjusted VWAP be determined by eliminating the price changes attributed to the rumor.

The goal is to calculate the purchase price while accounting for rumors’ potential to disrupt prices.

Unaffected pricing, in general, refers to a company’s share price in the absence of market rumors. The regulator has recommended taking into account the unaffected price of a scrip since abrupt price changes may have an effect on the transaction’s total value.

Unaffected prices will be taken into account for transactions that fall within the purview of the Listing Obligations and Disclosure Requirements (LODR) Regulations or stock exchanges. This criterion also depends on the corporation confirming any rumors about the transaction within 24 hours after the material price movement trigger.

According to the deputy CEO of Anand Rathi Wealth, Feroze Azeez, this quick confirmation assists investors by providing clarification and putting an end to protracted speculation, as PTI was informed.

Starting on June 1st, the top 250 listed entities and the top 100 listed firms will be required to confirm market rumors. This obligation will last until December 1st.

Important Points:

Beginning on June 1, 2024, the top 100 corporations by market capitalization will be subject to the rule.

By December 1, 2024, it will be expanded to include the top 250 businesses.

Reactions to market rumors are required from companies within twenty-four hours after a notable shift in price.

The stock exchanges must get this answer before they may distribute it to investors.

Azeez went on to say that the main goal of this framework is to make sure that speculative market activity does not inappropriately impact the stock prices utilized in transactions. Sebi wants to eliminate the WAP variance brought on by rumors in order to create a more precise and equitable pricing system.

This method guarantees that the transactions are based on the genuine worth of the goods and helps to reduce the dangers related to price manipulation.

The unaffected price will remain in effect from the day of market rumor confirmation until the “relevant date” as defined by current rules, which might be either 60 or 180 days depending on the stage of a transaction.

According to Trivesh of Tradejini, the new rules have a number of advantages, including less market manipulation, equitable values, and increased investor confidence.