Sebi floats new rules to curb price volatility

Market regulator the Securities and Exchange Board of India (Sebi) today said that trading of shares of companies going for a merger, demerger or a change in capital structure will have to be done in a price range for the first ten days of post-restructuring, in a move aimed at curbing volatility in trading of these scrips.

In addition, trading in these shares will have to be settled between buyers and seller without a clearing house for the first ten days, the Sebi said. This means that intra-day trading cannot happen in these shares for the first ten days.

The Sebi said in case of a merger, demerger, amalgamation, capital reduction/consolidation, "The trading shall take place in Trade-for-Trade segment for first 10 trading days with applicable price band while keeping the price band open on the first day of trading."

Trade-for-Trade Settlement means that transactions will be settled between buyers and sellers without a clearing house. In this kind of settlement, intra-day trading is not possible, since one has to take or deliver securities for every trade.

Explaining the provisions, SMC Capitals Equity Head Jagannadham Thunuguntla said the price range in trading of a concerned scrip on the first day of listing post-merger, demerger or capital changes will be taken as the band for trading over the next ten days.

The regulator said the circular will not apply to "original scrips, on which derivatives products are available, or included in indices on which derivatives products are available".

Explaining this provision, Thunuguntla said trading in only fresh shares, that will emerge after the merger, demerger or capital restructuring, will have to follow these rules in case the scrips are eligible for futures trade and options.

Scrips that are only traded in the cash segment will have to follow these rules, he said.

The market watchdog also directed that trading in scrips of all companies where at least half of the non-promoter holding is not in a digital form will have to be in the trade -for-trade segment.

The regulator said the move is aimed at "moderating sharp and destabilising price movements in shares of companies to encourage better price discovery and to increase transparency in the securities market".