SEBI has brought together three major industry associations to form an Industry Standards Forum (ISF). This forum will help design the implementation standards for certain regulations, working closely with SEBI and the two Stock Exchanges.
The ISF’s first task was to create standards for verifying market rumours. Originally set to start on October 1, 2023, this requirement was postponed to June 1, 2024.
After discussions, SEBI issued a circular on Tuesday detailing the new rule. Listed companies must now confirm, deny, or clarify market rumours if there is a significant price movement. This rule will apply to the Top 100 listed companies from June 1, 2024, and to the Top 250 listed companies from December 1, 2024.
The ISF and SEBI have created a guidance note to explain this requirement. Key points include:
- A rumour must be verified if it:
- Is reported in mainstream media, not just social media.
- Provides specific details and comes from reliable sources.
- Concerns an impending event.
- Causes a significant price movement, as defined by stock exchanges.
- For mergers and acquisitions (M&A), different disclosure standards apply depending on the transaction stage. For example, if a rumour is about hiring advisors, a general disclosure can be made. If it’s about signing a binding term-sheet, a confirmation is required.
- SEBI introduced an “unaffected price” concept for M&A deals. If a company confirms a rumour within 24 hours of a significant price movement, the stock price movement is ignored in open offer pricing. This “unaffected price” is valid for 60/180 days depending on the transaction stage. This protects deals from unwarranted price changes.
- For non-M&A situations like whistle-blower complaints, changes in key personnel, or the health of the MD/CEO, the same principles apply. For example, if a rumour about a whistle-blower complaint is false, the company should deny it. If true, no confirmation or clarification is needed unless specific details are provided.
SEBI’s new guidelines aim to protect deals from rumours, increase transparency, and reduce speculative trading. The ISF’s involvement has helped create balanced and practical implementation standards.
