SEBI's rule mandates top firms to address market rumors
What's the story
The Securities and Exchange Board of India (SEBI) has introduced a new rule requiring the top 100 listed firms by market capitalization, to confirm, deny, or clarify any market rumors reported in mainstream media within 24 hours.
This regulation will be extended to include the top 250 companies from December 1.
The initiative aims to ensure fairness for all investors and strengthen the rumor verification framework, according to Makarand M Joshi, founder of MMJC and Associates, a corporate compliance firm.
Market impact
Rule to impact corporate action price calculations
The new rule will also affect how prices are calculated for various corporate actions such as buybacks, qualified institutional placements, preferential allotments, and takeovers.
Joshi stated that periods of material price movement due to confirmed rumors will be excluded from these calculations.
This move is expected to discourage the leaking of information that could impact a corporation's valuation during these actions.
Market stability
Framework targets unaffected stock price determination
Market rumors can significantly influence a company's share prices, often leading to transactions that do not reflect the company's true value.
The SEBI framework addresses this problem by setting a mechanism to determine the unaffected price, which is the price of a share before the rumor surfaced.
This cost will be used for transactions unless the rumor itself caused price fluctuations in subsequent trading days, explained Trivesh D, Chief Operating Officer of Tradejini.