![SEBI’s framework to shield stock prices against market rumours: Explained
Premium](https://th-i.thgim.com/public/incoming/9g5lm7/article68201441.ece/alternates/LANDSCAPE_1200/IMG_FILE_PHOTO__A_bird_f_2_1_GGCNI3JU.jpg)
SEBI’s framework to shield stock prices against market rumours: Explained Premium
The Hindu
SEBI introduces 'unaffected price' framework to shield scrips from market rumors, ensuring fair pricing for business transactions.
The story so far: In order to tackle any impact on the price of a scrip because of a market rumour, the Securities and Exchange Board of India (SEBI) on May 21 introduced a framework centred around its ‘unaffected price.’ The metric would help obtain the price of the scrip before a rumour influenced its price. The idea is to maintain a reasonable price for a scrip, excluding any undesired influence before the rumour is confirmed or refuted. This helps both the company and the investor utilise a more unaffected and thus precise pricing for undertaking their regular business activities (such as mergers, acquisitions or buybacks). The framework is to be implemented in phases: it would apply to the top 100 listed entities from June 1 onwards and the top 250 entities from December 1 onwards.
To put it simply, the ‘unaffected price’ of the scrip would indicate its price before a particular rumour emerged became public. It would only be triggered if the rumour is confirmed by the company in question within 24 hours from when the scrip exhibited sizeable upward or downward movement. It would work a shielding mechanism which is triggered only when companies adhere to timeliness and transparency.
For perspective, a rumour about an acquisition, merger and demerger, sale of a lesser- performing asset, buybacks (when companies intend to buy the shares available in the open market), joint ventures or management changes can potentially raise the price of the scrip. The inflated price of the scrip because of the rumour, that is, primarily because of an informational asymmetry, averts the ability of market participants to obtain a rational price. This mechanism aims to tackle this paradigm.
Vamsi Krishna, CEO at StoxBox, explained to The Hindu that rumours relating to the award/cancellation of orders, management changes, acquisitions and takeovers and financial performance result in “unruly” moves in share prices. The unaffected price mechanism, Mr Krishna states, would put in place a fair price discovery mechanism to protect the interest of market participants. “The new mechanism would ensure that there is a level playing field for buybacks, M&As and other transactions (retail and institutions) and speculative activity is curbed to an extent,” Mr Krishna adds.
Further, as explained by HDFC Securities in a LinkedIn post, it would help improve market integrity by instilling better confidence in investors through listed companies that respond faster and clarify more transparently, and would push forward a better distribution of information.
A market rumour affects the volume weighted average price (VWAP) of the scrip. VWAP is an indicator of the average price at which the share traded through the day. It also factors in the volume of each of the trades to attain an average. Incorrect pricing of VWAP directly affects the scrip from being priced correctly for the business transactions described above.
The framework stipulates the variation in daily weighted average price from the day of the material price movement till the end of the next trading day after the confirmation of the rumour would be attributed to the rumour and its subsequent confirmation.
![](/newspic/picid-1269750-20240626153844.jpg)
Labour Ministry seeks report from TN govt over reports of married women denied work at Foxconn plant
Union Ministry of Labour seeks report on married women discrimination at Foxconn India Apple iPhone plant in Tamil Nadu.