NSE announces revision in current treatment of demergers
2 min read . Updated: 26 Apr 2023, 06:22 PM IST
PremiumThe change shall be applicable to the scheme of arrangement of all companies involving demergers on or after April 30, 2023.
NSE Indices Limited, a subsidiary of NSE, on April 26 announced the changes in the current treatment of 'demergers' in Nifty equity indices.
"Based on the study of global practices, and feedback received from the market participants, the Index Maintenance Sub-Committee (equity) of NSE Indices has decided to make revisions in the methodology of Nifty equity indices for treatment of demergers," said NSE in a media release.
NSE said the changes are expected to help in reducing churn in index constituents due to demergers.
The revised methodology is as follows:
If a special pre-open session (SPOS) is conducted by the exchange
(Exchange conducts a special pre-open session for the purpose of price discovery of all stocks in cases involving corporate restructuring.)
As per the revised methodology, if a special pre-open session is conducted by the exchange then the demerged company shall be retained in the index.
Besides, as per the NSE statement, the spun-off business or entity shall be included in the index at a constant price which is the difference between the demerged company’s closing price on T-1 day wherein T is the ex-demerger date and the price derived during a special pre-open session on the ex-demerger date.
The spun-off business or entity which is the newly listed entity shall be removed from the index after the end of the day on the third day of its listing.
In case, during the first two days of these three days, the spun-off entity hits the price band on both days, then the exclusion date shall be deferred by another three days.
After observing two consecutive days of the spun-off entity not hitting the price band, the spun-off entity shall be removed after the third trading day of such observation.
If on such a third day spun-off entity again hits the price band, the exclusion of such stock shall not be deferred any more.
If SPOS is not conducted
If a special pre-open session is not conducted by the exchange, the demerged company shall be removed from the index at the beginning of T-1 day (where T day would be the ex. date for the demerger of stock) by making a suitable replacement in case of indices with a fixed number of companies.
No replacement (inclusion) will be made in the case of indices with a variable number of companies.
The change shall be applicable to the scheme of arrangement of all companies involving demergers on or after April 30, 2023.
Earlier, the Index Maintenance Sub-Committee (equity) of NSE Indices had on November 18, 2022, announced a revision in the methodology of Nifty equity indices for the treatment of 'mergers'.