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SEBI New Rule to Combat Fake News & Stock Manipulation
Table of Contents
Introduction to SEBI's New Regulations
Hello everyone, how are you all doing? Have any of you invested in Tata Investment shares and experienced the spike due to rumors, where the share price shot up to 10,000 and then dropped to 6,500? Many got stuck in this situation. SEBI has now introduced measures to prevent losses for traders due to fake news spread by operators.
We'll explore SEBI's excellent steps to tackle this issue. If fake news arises, the manipulated prices won't be counted. SEBI has come up with a calculation method to address this, which I'll demonstrate live. This is great news for every trader.
Impact of Fake News on Retail Traders
We all know how fake news is spread massively in collaboration with the media, leading new retail traders, especially those who joined after COVID, to get trapped badly. Let's dive into the details, but first, if you're here for the first time, please subscribe to the channel.
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Case Study: Tata Investment and Semiconductor Plant Rumor
In March, there was a rumor about a semiconductor plant, leading to a rapid price increase in Tata Investment shares. However, Tata Investment clarified that they had no relation to the semiconductor plant. SEBI then sought an explanation, and the stock price dropped significantly afterward.
Such rumors attract retail traders, often trapping them. SEBI has now taken steps to prevent such situations. If you follow the media, you may get trapped. Even a major stock like Tata can be manipulated, so imagine the situation for smaller stocks.
SEBI's New Rules and Regulations
SEBI has introduced new rules to prevent manipulation. Let's understand these rules and their price effect through SEBI's circular and calculations.
First, SEBI mandates that companies must verify any rumors within 24 hours. If a company confirms that a rumor is false, the manipulated prices won't be considered. This rule applies to the top 100 companies by market cap starting June 1, and to the next 250 companies starting December 1.
Understanding VWAP Calculation
Let's understand how VWAP (Volume Weighted Average Price) calculation works. Suppose there was a sudden spike in a stock price due to a rumor. The company has 24 hours to confirm the rumor's validity. If the company confirms it as false, SEBI will adjust the stock price using VWAP.
For instance, if a stock price spiked to 9,500 due to a rumor, and the company confirms the rumor is false, SEBI will not consider this high price. Instead, SEBI will calculate the adjusted price using VWAP, ensuring fair pricing.
Example Calculation
Let's consider an example to understand the calculation. Suppose on July 26-27, there was a sudden 100-point spike in a stock price. SEBI will calculate the adjusted price based on the stock's normal trading pattern before the spike.
For instance, if the stock's normal price was 1,060 before the spike, and the price spiked to 1,178.90 due to a rumor, SEBI will calculate the adjusted price by subtracting the normal price from the spiked price. This adjusted price will be used for transactions, ensuring traders are not affected by manipulated prices.
Conclusion
SEBI's new rule aims to protect traders from losses due to fake news and manipulations. By verifying rumors within 24 hours and adjusting prices using VWAP, SEBI ensures fair trading practices. This step is a significant move towards safeguarding retail traders and maintaining market integrity.
If you have any questions or feedback about SEBI's new rule, please leave a comment. Share this information with others to spread awareness.
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Frequently Asked Questions
SEBI has implemented rules to tackle the issue of fake news by ensuring that any manipulated prices caused by rumors are not counted. Companies must verify any rumors within 24 hours. If a company confirms that a rumor is false, the manipulated stock prices due to the rumor will not be considered in transactions.
SEBI's new regulation protects retail traders by mandating companies to verify rumors promptly. If a rumor is confirmed to be false, SEBI adjusts the stock price using the Volume Weighted Average Price (VWAP), ensuring that traders are not impacted by artificially inflated or deflated prices.
VWAP stands for Volume Weighted Average Price. SEBI uses VWAP to calculate an adjusted stock price when a rumor is confirmed to be false. This calculation ensures that any sudden spikes or drops in stock prices due to rumors are neutralized, providing a fairer price for transactions.
The new regulations by SEBI will be implemented in two phases. For the top 100 companies by market capitalization, the rules will start on June 1. For the next 250 companies by market capitalization, the rules will take effect on December 1.
Sure! Suppose there's a sudden spike in a stock price from 1,060 to 1,178.90 due to a rumor. If the company confirms within 24 hours that the rumor is false, SEBI will adjust the price using VWAP. For instance, SEBI might calculate the adjusted price by considering the normal trading pattern before the spike, ensuring that the manipulated high price is not used in transactions.
