SEBI's New Market Rumor Guidelines Aid Fair M&A Pricing: Experts

Sebi's new guidelines for controlling the impact of stock prices on market news ensure that prices are used in mergers, acquisitions, repurchases and other transactions. by marketing companies, experts said on Wednesday.

Market news about the company's business can lead to large changes in stock prices, often in actions that do not reflect the true value of the company.

These market reports can cover a range of topics, including traffic levels, order fulfillment, and financial well-being.

Sebi's suggestion addresses this issue by establishing a system for determining the price that is not publicly listed - the price prior to the release of news.

Trivesh, Chief Operating Officer at Tradejini, mentioned that this price would be utilized for transactions unless the same rumor leads to price changes in future trading days.

In its circular issued on Tuesday, Sebi clarified the framework for calculating the adjusted volume weighted average price (VWAP) to consider unaffected prices in transactions.

The guidelines also stipulate that adjusted VWAP be calculated by excluding price changes attributable to the rumors, reflecting the value of the stock before the market's reaction to the rumors.

The goal is to exclude price disruption caused by rumors while determining the acquisition price.

Generally, unaffected price refers to the price of a company's stock in the absence of a rumor in the market. Since sharp price movements can affect the overall value of the transaction, the regulator has suggested considering the unaffected share price.

Under the Listing Obligations and Disclosure Requirements (LODR) Regulations, unaffected prices must be taken into account for transactions that meet pricing criteria specified by them or by the exchanges. This requirement is also subject to rumors of such a transaction being confirmed by the Company within 24 hours of the beginning of the material price movement.

This immediate confirmation helps limit prolonged speculation and provides clarity to investors.

The requirement to verify market rumors will apply to the 100 largest listed companies as of June 1 and the 250 largest listed entities as of December 1.

 The main goal of this framework is to prevent speculative market activity from artificially influencing stock prices used in transactions. Sebi's goal is to establish a pricing mechanism that is more precise and just by identifying and removing WAP discrepancies attributed to rumors.

This approach helps to reduce the problems related to price changes and ensures that the jobs are based on their real value.

The number will remain unchanged for 60 days or 180 days depending on the trading platform, from the date of confirmation of the market news until the "relevant date" according to the current regulations.

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