The Securities and Exchange Board of India (SEBI’s) new rule to protect stock market investors got effective on 1st June. The New rules would be first applicable starting from June 1 for the top 100 listed companies by market capitalization and it would be extended to another 150 listed firms from December.

Currently the rules have been made for:

1. Top 100 Listed companies.
2. Mutual Funds.
3. Agricultural Commodities.

What is the new Rule?

According to SEBI, the Top 100 Listed companies have to accept , deny or clarify the rumors which had led to a ‘significant price’ movement in their shares . If a company confirms the rumour within 24 hours, the effect of such news on stock prices will be excluded when computing the volume-weighted average price, which is used to calculate a stock’s average price over a period, factoring in the volume traded. This new mechanism of ‘unaffected price’ can be used for a period of 60 days or 180 days depending on the stage of transaction.

Understand this with the help of an example-

Imagine you’re buying shares (small pieces of ownership) in companies at a stock market. Sometimes, whispers and rumors fly around about these companies. These rumors can make the price of the shares jump up and down quickly, even if they aren’t true.

The problem is, this sudden jump doesn’t reflect the real value of the company. Some investors might get stuck buying shares at a high price because of a rumor, while others might miss out on good deals if a rumor scares the price down.

To fix this, SEBI (the stock market regulator in India) has a new rule. Now, if there’s a rumor about a big company (one of the top 100), the company has to come clean within a day. They need to say if the rumor is true, false, or they just don’t know.

This way, everyone in the market gets the same information at the same time. The share prices won’t swing wildly based on rumors, and investors can make decisions based on real facts. This makes the whole stock market fairer for everyone involved.

For Mutual Funds :

Starting June 1, the Securities and Exchange Board of India (SEBI) will introduce a new format for important documents related to mutual funds to make them easier to prepare and understand. These documents are:

1. Scheme Information Document (SID): This document explains the details of a mutual fund scheme, like its goals, how it plans to invest money, the risks involved, and past performance. The new format will make this information clearer and easier to read.
2. Key Information Memorandum (KIM): This is a shorter version of the SID, providing the most important details quickly, such as the scheme’s objectives, how much you need to invest, and any fees for exiting the scheme. The revised format will highlight these key points more clearly.
3. Statement of Additional Information (SAI): This document gives extra details about the mutual fund company, including information about its management and key people. The new format will make this information more organized and transparent.

For Agricultural Commodities :

Starting from June 1, the rules for launching options on agricultural and processed agricultural commodities futures are changing. Previously, to launch these options, the underlying futures contracts needed to have an average daily trading volume of Rs 200 crore over the past twelve months. Now, this requirement has been reduced to Rs 100 crore.

What This Means:

• Old Rule: The futures contracts needed to have a daily trading volume of Rs 200 crore.
• New Rule: The daily trading volume requirement is now only Rs 100 crore.

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Disclaimer :
The recommendations made above are by market analysts and are not advised by either the author, nor FinTrend 24. The author, nor the brokerage firm nor FinTrend 24 would be liable for any losses caused as a result of decisions based on this write-up. FinTrend 24 advises users to consult with certified experts before making any investment decision.