In furtherance of a consultation paper (that was discussed in a previous edition of LegIt), the Indian securities market regulator – Securities and Exchange Board of India (SEBI), along with the recognized stock exchanges – BSE and National Stock Exchange of India (NSE), and the industry bodies – FICCI, CII and ASSOCHAM have prescribed the comprehensive regulatory framework for verification of market rumours by listed companies in India. This framework has become applicable on the top 100 listed companies of India (basis market capitalization as on March 31, 2024) with effect from June 1, 2024 and shall become applicable on the next 150 listed companies (basis market capitalization as on March 31, 2024) with effect from December 1, 2024.
As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) – which is one of the primary legislations governing listed entities in India, listed entities are required to confirm, deny or clarify any market rumour that is reported in the ‘mainstream media’, which is ‘not general in nature’ and which leads to a ‘material price movement’. This confirmation/clarification/denial has to be provided by the listed company within 24 hours from the trigger of ‘material price movement’.
Therefore, there are three pre-requisite conditions that need to be fulfilled for a listed entity to comment on a market rumour as per the LODR Regulations, which are as follows:
- the market rumour must be reported in ‘mainstream media’;
- the market rumour must be ‘not general in nature’; and
- there must be a ‘material price movement’ in the share price of the listed entity.
The Industry Standards Note published by FICCI, CII and ASSOCHAM (Note) and the circulars published by BSE and NSE (SE Circulars) provide clarity on the abovementioned conditions, and the same is discussed below.
Mainstream Media
As per the Note, the top 20 English national dailies (whether print or digital version) covering general news/ current affairs and business/ financial news in India, having a circulation of 1,00,000 or more copies, per publishing day, will be considered to be ‘mainstream media’. Similarly, the top 2 regional dailies (whether print or digital version) having the highest circulation, for each of the 22 official languages of India, and fulfilling the aforesaid circulation threshold, will be considered as ‘mainstream media’.
Further, the Note has provided the list of business/financial news dailies, channels and news sources that would be considered as ‘mainstream media’. The top 5 English business/financial news dailies by circulation, in the top 5 jurisdictions from where foreign portfolio investors have invested in India (i.e., United States of America, United Kingdom, Singapore, Luxembourg and Mauritius), would also be considered as ‘mainstream media’. The Note also clarifies that social media platforms (including but not limited to WhatsApp, X (Twitter), Instagram, Facebook, Telegram etc) will be excluded from the ambit of ‘mainstream media’.
Therefore, given the vast number of sources covered under the ambit of ‘mainstream media’, the listed entities will have to put in place appropriate technology solutions and engage reputed external media agencies, for tracking news reported with respect to the companies in the specific ‘mainstream media’. This is going to be a significant compliance burden and cost for the listed companies.
Not General in Nature
The Note clarifies that for a market rumour to require a confirmation/ denial/ clarification the LODR Regulations, it must (i) provide specifically identifiable details of the matter/ event; or (ii) provide quotes or be attributed to sources who are reasonably expected to be knowledgeable about the matter. It is further clarified that the rumour verification requirement shall not be applicable to market rumours that are vague or general in nature.
The Note also provides various illustrations of M&A and non-M&A transactions scenarios that would be considered to provide ‘specifically identifiable details’ and that would not be considered to provide ‘specifically identifiable details’, for the purposes of verification of market rumours. For example, in case of acquisition of stake in another company, a rumour stating that Company X is currently in talks to undertake a potential acquisition (without identifying the target entity) would not be considered to provide ‘specifically identifiable details’, and hence would not require a response under the LODR Regulations.
Material Price Movement
The SE Circulars provide the framework for determining ‘material price movement’ and in this regard, the circulars provide that the price benchmarking for NSE prices shall be NIFTY 50 Index and for BSE prices shall be Sensex Index. Price benchmarking shall be done at the start of day (i.e., at 9:30 AM). Further, rumours shall be verified only if the security has moved in the direction of the news i.e., if the security has witnessed positive movement for positive news and vice- versa.
In case of intraday price movement (i.e., after 9:30 AM), only the price range-based price variation shall be considered, irrespective of the Index movement. Further, the percentage variation in share price and the benchmark index movement shall be calculated from the closing price of the immediately preceding trading day.
The percentage variation in share price of the listed entity that would be considered as ‘material price movement’ would be determined as per the following table:
Case of ‘Positive’ news/ rumour
| Price range of the listed equity shares
|
Percentage variation in share price which shall be treated as material price movement
|
||
| Benchmark index movement is less than 1% at 9.30 am
|
Benchmark index movement is greater than or equal to 1% at 9.30 am
|
Intraday price movement (i.e. after 9.30 am)
|
|
| INR 0 to 99.99 | Greater than or equal to 5% | Greater than or equal to (5% + % change in Benchmark index at 9:30 am) or Band hit | Greater than or equal to 5% |
| INR 100 to 199.99 | Greater than or equal to 4% | Greater than or equal to (4% + % change in Benchmark index at 9:30 am) or Band hit | Greater than or equal to 4% |
| INR 200 and above | Greater than or equal to 3% | Greater than or equal to (3% + % change in Benchmark index at 9:30 am) or Band hit | Greater than or equal to 3% |
In case of ‘Negative’ news/rumour
| Price range of the listed equity shares
|
Percentage variation in share price which shall be treated as material price movement
|
||
| Benchmark index movement is less than or equal to -1% at 9.30 am | Benchmark index movement is greater than -1% at 9.30 am
|
Intraday price movement (i.e. after 9.30 am)
|
|
| INR 0 to 99.99 | Less than or equal to (-5% – % change in Benchmark index at 9:30 am) or Band hit | Less than or equal to -5% | Less than or equal to -5% |
| INR 100 to 199.99 | Less than or equal to (-4% – % change in Benchmark index at 9:30 am) or Band hit | Less than or equal to -4% | Less than or equal to -4% |
| INR 200 and above | Less than or equal to (-3% – % change in Benchmark index at 9:30 am) or Band hit | Less than or equal to -3% | Less than or equal to -3% |
Accordingly, a market rumour would only need to be verified, denied or confirmed by a listed company if it meets all the three above-mentioned conditions.
Framework for Considering Unaffected Price for Transactions upon Confirmation of Market Rumours
In addition to the above, SEBI has also issued certain circulars (which can be viewed by clicking on this link) and amendments in relation to the framework for considering the market price of the securities, that is unaffected by confirmation of a market rumour, for determining pricing of various corporate actions by a listed company such as issuance of further securities, buyback of securities and open offer for takeover.
Specifically, under this framework, the variation in daily weighted average price (WAP) from the day of ‘material price movement’ till the end of the next trading day after confirmation of the rumour shall be attributed to the rumour and confirmation of the rumour (WAP variation) and the adjusted daily WAP shall be calculated by excluding the WAP variation from the daily WAP in the look back period from the day of the ‘material price movement’ onwards. The adjusted daily WAP from the day of ‘material price movement’ till the end of the next trading day after confirmation of the rumour shall be same as the daily WAP on the trading day preceding the day of ‘material price movement’.
Further, the unaffected price shall be applicable for a period of 60 days or 180 days, as applicable based on the stage of transaction, from the date of confirmation of the market rumour till the ‘relevant date’ under the existing regulations.