Capital markets regulator SEBI has changed the way it calculates market capitalization (market cap) of listed companies under Listing Obligations and Disclosure Requirements (LODR) rules. Instead of using the market capitalization of a single day (currently March 31), listed companies will now use the ‘average market capitalization’ for a six-month period. According to Bhasha news, market experts believe that the market capitalization of a listed entity keeps fluctuating on a daily basis depending on the market dynamics. Therefore, averaging market capitalization figures over a reasonable period will more accurately reflect the market size of that listed entity.
A notification was issued on 17 May
According to the news, these changes have been made keeping in mind the recommendations of an expert committee constituted under the chairmanship of SK Mohanty, former whole-time member of the Securities and Exchange Board of India (SEBI). This committee was formed to promote ease of doing business. SEBI said in a notification issued on May 17 that this amendment will come into effect from December 31, 2024. The compliance ranking will be based on average market capitalization from July 1 to December 31, with December 31 as the cut-off date. After determining the market capitalization on this date there will be a transition period of three months before the relevant provisions come into force.
Then the new provisions will not apply to the listed entity
Amending the LODR norms, SEBI said that every recognized stock exchange shall, at the end of the calendar year i.e. December 31, prepare a list of companies that have traded in their specified shares by ranking such companies on the basis of their average market capitalization since July. Securities are listed.
If the ranking of an entity changes for three consecutive years, the new provisions will not apply to the listed entity, providing relief to companies experiencing market capitalization fluctuations. Apart from this, SEBI has given relaxation in respect of filling vacant posts of Key Managerial Role (KMP) and in some cases, the time limit has been extended from the existing three months to six months.
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