Separating Fact From Fiction: Imperative Of Market Rumour Verification

The market rumour verification requirement was introduced by the Securities and Exchange Board of India in June 2023, with the objective of institutionalising transparency for investor protection against false market sentiment. In its original avatar, implementation had practical challenges (hence the implementation was deferred), which SEBI ironed out through extensive discussions with the industry through the Industry Standards Forum, a joint effort of Assocham, CII, and FICCI, under the leadership of KV Kamath. It is now effective from June 1, 2024, for the top 100 listed entities and from Dec. 1, 2024, for the top 250 listed entities.

The market rumour verification requirement, as it stands today, requires the listed entity to verify—that is, confirm, deny, or clarify—a market rumour published in identified mainstream media containing reference to a specific event or information with respect to such listed entity that is not general in nature. Such market rumour impacts the listed entity's stock price, causing “material price ement." Stock exchanges have specified thresholds for positive and negative material price movement based on the price range of the equity shares as a percentage variation in the security price between the closing price of the previous trading day and the opening price as well as intraday. The price variation threshold ranges from 3% to 5%. The higher the per-share price, the lower the percentage variation.

Once material price movement occurs and there is a rumour in mainstream media, the listed entity is required to confirm, deny, or clarify the rumour within 24 hours of such price movement. It is plausible that there are multiple market rumours that could have a nexus to the price fluctuation—for example, speculation about an impending merger and a preferential allotment. In such a case, the listed entity would be required to pinpoint each such existing rumour in the market and verify it.

Given that the timeline for verification is set in motion from the occurrence of material price movement, for the listed entities to ensure timely compliance, it is critical to not only track price movement but also news cycles so as to be able to promptly link price movement to market rumour(s). While revamping processes, it would also be worthwhile to set in place mechanisms for seeking information from promoters, directors, key managerial personnel, and senior management, especially where market rumours pertain to them, so as to enable them to discharge the statutory obligation of enabling verification.

SEBI has also provided a price protection mechanism for corporate actions such as open offers, qualified institutional placements, preferential allotments, buybacks, schemes, or any other event for which a pricing norm is specified by SEBI or stock exchanges, if a rumour is confirmed upon material price movement. SEBI prescribes the computation of the adjusted unaffected price, which is the volume-weighted average price of the security sans the variation attributable to the rumour and its verification for a lookback period of 60 or 180 days from the date of board approval for or public announcement of such a deal. Such variation is computed as the delta between the weighted average price of the security a day before the material price movement and that on the next trading day after rumour verification.

From bridging the gap between fact and fiction to safeguarding investor interests, SEBI’s market rumour verification requirement represents a pivotal shift in governance and disclosure. By delineating between genuine unpublished market information and unfounded speculation, this compliance requirement brings further integrity to India's capital markets and is a move towards a mature and resilient India Inc. It is an excellent example of cooperation between industry and regulators to arrive at practical implementation standards for SEBI’s initiatives to improve market integrity.