Sebi issues framework to shield stock price impact from market rumours

Framework aimed at providing price protection to acquirers

The Securities and Exchange Board of India (Sebi) on Tuesday detailed a framework for around “unaffected price” to calculate pricing for takeovers, buybacks, preferential issues and other such transactions.

The framework is part of the new rumour verification norms that kick in from June 1.

The market regulator has said the “unaffected price” rule will be applicable only if the listed entity has confirmed the rumour related to the transaction within 24 hours from the trigger of material price movement.

Under the new framework, the weighted average price (WAP) variation will be excluded while calculating the takeover pricing from the day of the material price movement till the next trading day after confirmation of the rumour.

The objective is to exclude any price disruption caused by market rumours while calculating the acquisition price during an acquisition.

“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,” said Sebi.

The change will help companies address market rumours without being worried about the impact on deal pricing, believe legal experts.

“The newly introduced price protection framework is a welcome and a much- needed move. It will effectively isolate the transacting parties from unexpected price volatility on the back of market leaks, and at the same time enable more transparent information flow in the market,” said Abhishek Dadoo, Partner, Khaitan & Co.

The fine print

> Price protection framework to address stock impact due to rumours

> ‘Unaffected price’ to be considered for pricing deals, transactions only if company confirms rumour within 24 hrs

> The day stock sees impact due to a report, followed by the day when company confirms rumour, and the next trading day to be excluded when calculating volume-weighted average price

> Unaffected price applicable for 60 days or 180 days after confirmation, depending on the stage of transaction

> These norms come into effect from June 1