SEBI Releases Guidelines To Mitigate The Impact of Market Rumours on Stock Prices

The Capital Market regulator, the Securities and Exchange Board of India(SEBI) on Tuesday released a new set of guidelines for reducing the impact of market rumours on stock prices.

SEBI Issues Guidelines to Curb Market Rumours Impacting Stock Prices

On Tuesday, the Securities and Exchange Board of India (SEBI) released new guidelines aimed at reducing the influence of market rumours on stock prices. In a circular issued after market hours, SEBI introduced the concept of an “unaffected price” to help mitigate artificial stock price fluctuations.

SEBI stated that listed entities must verify market rumours if there is a significant price movement. The stock exchanges will provide frameworks for identifying material price movements on their websites. According to the circular by SEBI, the requirement to verify market rumours will apply to the top 100 listed entities starting June 1, 2024, and will extend to the top 250 listed entities (the next top 150) from December 1, 2024.

SEBI’s Guidelines for Mitigating Stock Price Impact from Rumours

The “unaffected price” is going to be determined by excluding the impact of material price movements and rumour confirmations on the listed company’s equity share price. The adjusted volume-weighted average price (VWAP) calculation for the unaffected price will involve: 

• Attributing the variation in daily WAP from the day of the material price movement until the end of the next trading day after the rumour is confirmed to the rumour and its confirmation.
• Calculating the adjusted daily WAP by excluding the WAP variation from the daily WAP during the look-back period starting from the day of the material price movement.
• Ensuring the adjusted daily WAP from the day of the material price movement to the end of the next trading day after rumour confirmation matches the daily WAP on the trading day before the material price movement. 

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

Conclusion: The market regulator, SEBI always remain active when it comes to protecting the investors of the market, SEBI has introduced these measures as they are designed to provide more stability in the stock prices by addressing the effects of market rumours swiftly and transparently.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.