SEBI Introduces New Norms to Curb Stock Price Fluctuations Due to Market Rumours

The Securities and Exchange Board of India (SEBI) has unveiled a significant regulatory measure aimed at mitigating the impact of market rumours on stock price fluctuations. On May 21, SEBI introduced a new price discovery framework designed to determine the appropriate transaction price for listed companies in the wake of market rumours. This move is part of SEBI’s broader efforts to enhance market integrity and ensure fair trading practices.

Framework Details

Starting June 1, the framework will be applicable to the top 100 listed companies by market capitalization. It mandates these companies to establish an “unaffected price” within 24 hours of any significant price movement triggered by rumours. This unaffected price represents the share price that would have prevailed had the rumour not influenced market activity.

Mechanism of the Framework

1. Confirmation or Denial: When a market rumour causes significant fluctuations in a company’s share price, the company must promptly confirm or deny the rumour within a specified timeframe.
2. Price Determination: Following the confirmation or denial, the company is required to determine the unaffected price within 24 hours. This price excludes the impact of the rumour and reflects the true market value of the stock.
3. Application: The unaffected price will be used to establish transaction prices for any deals involving the company’s shares, ensuring that these transactions are based on accurate and fair valuations.

Market Impact

Experts believe that this framework will provide a more stable and transparent trading environment. By isolating the effects of market rumours, SEBI aims to prevent speculative activities from unduly influencing stock prices, thereby protecting investors and maintaining market confidence.

Industry Reactions

Financial analysts and market participants have largely welcomed the new norms, viewing them as a positive step towards enhancing market stability. “This framework is a much-needed intervention to curb the volatility caused by unfounded market rumours,” said Anuj Singhal, a seasoned market analyst. “It ensures that share prices reflect the true performance and prospects of a company, rather than being swayed by speculative chatter.”

Conclusion

SEBI’s new price discovery framework marks a crucial development in the Indian stock market landscape. By addressing the impact of market rumours, SEBI is reinforcing its commitment to maintaining fair and orderly markets. As the framework comes into effect, its effectiveness in curbing stock price volatility and fostering investor confidence will be closely monitored.

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