The Securities and Exchange Board of India (SEBI) has reportedly revised the takeover regulations. This could help in lowering the cost of mergers and acquisitions (M&A) for Indian companies.
With these new rules, fluctuations in stock prices caused by news reports or leaked sensitive information will not affect the calculation of the open offer price.
According to Moneycontrol, this change is part of SEBI’s new rumour verification framework, which will be effective from June 1, 2024.
The open offer price is determined using the volume-weighted average price over 60 days prior to the announcement. However, news about potential M&As often leaks to the media before the official announcement, causing the target company’s stock price to rise. This leads to a higher open offer price, making the acquisition more expensive for the acquirer.
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From June 1, 2024, the top 100 companies listed on the stock market are required to quickly confirm, deny, or explain any news from the media that might cause their stock prices to change a lot within 24 hours.
This rule will also apply to the top 250 companies from December 1, 2024. Originally, these rules were supposed to start in February but got delayed.
These rules help companies deal with rumours confidently, knowing that any changes in their stock prices won’t scare off potential buyers. This is good for regular people who own shares because it makes the stock market fairer.
A group of industry experts suggested changes to the original rules about handling rumours. After considering their suggestions, the Securities and Exchange Board of India (SEBI) made some changes in March.
Also Read: SEBI Issues New Guidelines to Manage Impact of Market Rumours on Stock Prices
According to SEBI rules, the pricing of preferential issues, open offers, and various transactions rely on the volume-weighted average price (VWAP). This VWAP calculates the average price of a stock over time, considering the trading volume. SEBI is now suggesting using the “unaffected price” for these calculations.
The markets regulator has also urged listed companies to confidently address market rumours, knowing that stock price volatility won’t discourage potential bidders.
The aim of these modifications is to reduce trading based on false information and promote a more stable and trustworthy environment in the market.
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Disclaimer: The above content is for informational purposes only. The 1% News recommends consulting a SEBI-registered investment advisor before making any investment decision.
