Regulation 30 of SEBI (Listing Obligation and Disclosure Requiremnets) Regulations, 2015 ("LODR") read with Paragraph A of Part A of Schedule III of LODR requires listed entities to disclose occurrence of material events such as acquisition(s), including agreement to acquire, scheme of arrangement (amalgamation, merger, demerger or restructuring), sale or disposal of any units, or any other restructuring.
The guidance on when an event has occurred for the purpose of disclosure under Regulation 30 was first provided by SEBI vide its circular dated September 9, 2015. This was followed by other master circulars dated July 11, 2023, and November 11, 2024, which stated that for the purpose of disclosure under Regulation 30, when an event can be said to have occurred will depend on the stage of discussion, negotiation, or approval. In general, the event would occur upon receipt of approval of Board of Directors and in certain events/information after receipt of approval of both i.e., Board of Directors and shareholders.
Obligations to confirm / deny market Rumours
Regulation 30(11) of LODR initially stated that a listed entity may on its own initiative confirm or deny any reported event or information to stock exchange(s). However, the first proviso to this regulation provided that the top 100 (one hundred) listed entities (with effect from October 1, 2023) and thereafter the top 250 (two hundred Fifty) listed entities (with effect from April 1, 2024) shall confirm, deny or clarify any reported event or information in the mainstream media which is not general in nature and which indicates that rumours of an impending specific material event or information in terms of the provisions of this regulation are circulating amongst the investing public, as soon as reasonably possible and not later than twenty four hours from the reporting of the event or information. The second proviso further provided that if the listed entity confirms the reported event or information, it shall also provide the current stage of such event or information. The explanation to the regulation stated the top 100 (one hundred) and 250 (two hundred fifty) listed entities shall be determined based on market capitalization, as at the end of the immediately preceding financial year.
SEBI amended Regulation 30(11) vide SEBI (LODR) Amendment Regulations, 2024 ("Amendment Regulation") dated May 17, 2024, and made the following changes:
1. Regulation 30(11) was amended to make the obligation to confirm or deny any reported event or information to stock exchanges mandatory, subject to the proviso attached to the regulation.
2. The first proviso to Regulation 30(11) was amended to link the obligation of market rumour verification with material price movement. The amended proviso now states that the top 100 (one hundred) listed entities and thereafter the top 250 (Two Hundred Fifty) listed entities with effect from the date specified by the board shall confirm, deny or clarify, upon material price movement as specified by the stock exchanges, any reported event or information in the mainstream media which is not general in nature and which indicates that rumour of an impending specific event or information is circulating amongst the investing public, as soon as reasonably possible, but in any case, not later than twenty four hours from the trigger of material price movement.
3. The explanation to Regulation 30 (11) for determination of the top 100 (one Hundred) listed entities and thereafter the top 250 (two Hundred Fifty) listed entities as per market capitalization, as at the end of the immediately preceding financial year was omitted. However, Regulation 3(2) provides that every recognized stock exchange shall, at the end of the calendar year, i.e., December 31, prepare a list of entities that have listed their specified securities, ranking such entities based on their average market capitalization from July 1 to December 31 of that calendar year.
The timelines for application of the first proviso to Regulation 30(11) was revised by SEBI circular on 'Industry Standards on Verification of Market Rumours' dated May 21, 2024, which stated that the requirement to verify market rumours in cases of material price movement under Regulation 30(11) of LODR shall apply to top 100 (one hundred) listed entities with effect from June 01, 2024, and to top 250 (two hundred fifty) listed entities (i.e., next top 150 (one hundred fifty)) with effect from December 01, 2024.
The circular also mentioned that to facilitate ease of doing business, the Industry Standards Forum ("ISF") comprising of representatives from the Associated Chambers of Commerce & Industry of India's ("ASSOCHAM"), Confederation of Indian Industry ("CII") and Federation of Indian Chambers of Commerce and Industry ("FICCI") has formulated industry standards, in consultation with SEBI on verification of market rumours. These industry standards have been incorporated in an 'Industry Standard Note' which provides further clarifications relating to market rumours. These are as follows:
1. The Industry Standard Note, for compliance with proviso 1 to regulation 30(11), covers the specific news sources that would fall under the 'mainstream media.'
2. It provides for the meaning of 'not general in nature' under proviso 1 and states that for a market rumour to require a confirmation/ denial/ clarification under Regulation 30(11), 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. Further, if a specific rumour is false, the company shall issue a statement to deny the rumour. Therefore, Regulation 30(11) shall not be applicable to market rumours that are vague or general in nature or where the market rumour is in relation to a transaction undertaken in the ordinary course of business.
3. It clarifies that even if the market rumour is specific and impending, a confirmation/ denial/ clarification under Regulation 30(11) will be required only if the market rumour results in a material price movement. This is applicable for both M&A and non-M&A transactions as well as for the purpose of responding to queries raised by the Stock Exchanges under Regulation 30(11), in respect of rumours of material events/ information.
4. Specific to M&A transactions, it clarifies that disclosure is not needed under Regulation 30 read with Paragraph A of Part A of Schedule III of LODR at the preparatory stage of a transaction including a) signing of an NDA, b) signing of a non-binding term sheet/ letter of intent, c) commencement of a due-diligence process, d) engagement of legal/ financial advisors or a registered valuer for valuation, e) possessing information for evaluating deal viability for internal management purposes, f) constitution of a sub-committee of the Board to evaluate the material terms/ assess viability of a specific M&A deal etc., and g) when the sub-committee grants approval to explore or an in principle approval for a specific M&A deal, subject to further evaluation which requires a final approval at a later stage.
5. However, a disclosure would have to be made under Regulation 30(11) if a market rumour results in a material price movement. For example, a) when a multi-party bid process is ongoing, in respect of acquisition of or from a listed company, and there is a market rumour in respect of the potential M&A deal, or in respect of the names of the bidders, or b) where following the bid process, a bidder has been selected and notified that it is the sole bidder and material terms to be included in the transaction documents are agreed upon, or c) when a binding term sheet is signed in respect of an M&A transaction where the target is a listed company, including with an exclusivity arrangement, or d) when all material commercial terms between the parties and management are agreed upon and the management takes the transaction to the board for consideration and final approval, so long as the market rumour provides specifically identifiable details of the matter/ event, resulting in a material price movement, confirmation, or denial of the information under Regulation 30(11) would have to be made by the listed acquirer, listed bidder, listed target, as the case may be.
Obligation to Provide Adequate, Accurate and Timely Responses:
Vide the Amendment Regulation, after sub-regulation (11), sub-regulation (11A) was inserted which states that the promoter, director, key managerial personnel or senior management of a listed entity shall provide adequate, accurate and timely response to queries raised or explanation sought by the listed entity in order to ensure compliance with the requirements under Regulation 30(11) of LODR and the listed entity shall disseminate the response received from such individuals promptly to the stock exchanges.
Exclusion of Impact of Market Rumours on SEBI Pricing Norms
Vide the Amendment Regulation, proviso 3 was inserted under Regulation 30(11) which provides that the impact of market rumours may be excluded from calculations of pricing under the following SEBI regulations:
1. Chapter V (preferential issue), SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018;
2. Chapter VI (qualified institutions placement) SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018;
3. Regulation 8 (offer price for an open offer) or Regulation 9 (mode of payment of offer price) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; or
4. Regulation 19 (procedure of buy-back of shares or specified securities in physical form through stock exchanges) or Regulation 22B (offer procedure and disclosure of buy-back price) of SEBI (Buy-back of Securities) Regulations, 2018.
The Industry Standard Note provides that this exclusion is also applicable in cases of:
1. delisting offer under the SEBI (Delisting of Equity Shares) Regulations, 2021;
2. scheme of arrangement involving a listed company (irrespective of whether the scheme involves a preferential issue or not), undertaken in compliance with the requirements of the SEBI Master Circular on Schemes of Arrangement, dated June 20, 2023;
3. any other transaction where the pricing is regulatorily required to be linked to the traded price of the scrip, including but not limited to cross border transactions involving the equity instruments of a listed company (i.e., purchase, sale, issuance of such equity instruments).
This framework for calculation of pricing was required, as the movement in share price would affect the calculation of the floor price in such cases. Post amendment, when the listed entity confirms within 24 (twenty-four) hours from the trigger of material price movement, any reported event or information on which pricing norms provided under are applicable, then the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the reported event or information may be excluded for calculation of the price for that transaction to derive the unaffected share price.
Pursuant to the Amendment, on May 21, 2024, SEBI issued another circular on 'Framework for Considering Unaffected Price for Transactions Upon Confirmation of Market Rumour'. The framework provides for calculation of unaffected price for transactions as mentioned above on which SEBI pricing norms apply, provided that the market rumour is verified within 24 (twenty-four) hours of the trigger of material price movement.
Calculation of Unaffected Price:
The calculation of adjusted volume weighted average price ("VWAP") for considering unaffected price is given below:
1. 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").
2. 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.
3. The adjusted VWAP for the look back period shall be calculated based on the adjusted daily WAP calculated as mentioned above.
Duration for Applicability of Unaffected Price:
The unaffected price shall be applicable for a period of 60 (sixty) days or 180 (one-hundred eighty) 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 (public announcement, board approval, etc., as the case may be). The stages of transaction and applicability period of the unaffected price are specified in the Industry Standards as below:
1. The note states that the unaffected price shall remain valid for a period of 60 (Sixty) days from the date of confirmation of the market rumour in the situations when a) a binding term-sheet is signed in respect of an M&A transaction where the target is a listed company; or b) when all the material commercial terms have been agreed between the parties, and the management decides to take the transaction to the board (or a delegated board committee) for its consideration and final approval; or (c) in respect of the securities of a listed bidder or listed acquirer, as the case may be, in case the transaction involves the securities of a listed bidder/ listed acquirer as well, and a confirmation in this regard is made as a part of the rumour verification.
2. The unaffected price shall remain valid for a period of 180 (One-Hundred Eighty) days from the date of confirmation of the market rumour to all bidders, if there is a competitive bidding process for a potential M&A deal, in respect of acquisition of or from a listed company and a confirmation in respect of the bid process is made by the listed target or by one or more bidders. In such a scenario, unaffected price will be available to all bidders, irrespective of whether the name of the specific bidder has been confirmed, while responding to the market rumour.
3. The framework for considering unaffected price will be applicable in respect of the shares of listed companies which are either referred to in the rumour confirmed, or in the confirmation issued, and to all parties who are involved in that specific transaction.
4. The framework for considering unaffected price will also be applicable for the bidder/ acquirer and the seller, in situations where the target is not a party to the deal, and the deal is disclosed by the target or a potential bidder under Regulation 30(11).
5. However, in cases where the company is not a party to the deal or does not have knowledge about the rumoured transaction/ deal, a specific confirmation/ denial would not be required, and a disclosure by the listed entity stating that it does not have knowledge of the deal or its details and can neither confirm nor deny the rumour, would serve as sufficient compliance with the requirements of Regulation 30(11). In case the transaction involves the promoter of the company, in this specific situation, the company will be obligated to check with the promoter in respect of the market rumour.
Analysis
The regulatory framework on market rumours is a positive step to ensure immediate verification of market rumours. As pricing under various SEBI regulations, discussed above are based on lookback VWAPs, which are unfairly affected by rumours, calculation of unaffected prices by excluding the WAP variation from the daily WAP in the look back period from the day of the material price movement will allow the impact of such rumours to be excluded. This will allow more certainty in pricing of transactions and improves deal/ transaction certainty.
This update has been contributed by Armaan Patkar (Partner) and Vishakha Somani (Associate).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
