The National Stock Exchange has come out with new norms to retain the demerged entity of an index constituent in the respective index.
A demerged company will remain part of the index, only if the exchange has decided to conduct a Special Pre-Open session (SPOS) for the spun-off entity, NSE said in a circular on Wednesday.
To reduce churn
The change is expected to help in reducing churn in index constituents resulting from corporate action involving demergers, according to the bourse.
Additionally, the spun-off business/entity should be included in the index at constant price (which is the difference between the demerged company’s closing price one day prior to ex-date of demerger and price derived during SPOS), it added.
However, the spun-off business/entity, which is the newly listed entity, should be removed from the index after three days. In case, during the first two days if the spun-off business/entity hits the price band on both days, the exclusion date should be deferred by another three days, NSE said adding that post observing two consecutive days of the spun-off business/entity not hitting the price band, it should be removed after the third trading day.
“If on such third day spun-off business/entity again hits the price band, exclusion of such stock shall not be deferred anymore,” the exchange clarified.
If SPOS is not conducted by the exchange, the demerged company should be removed from the index one day ahead of the ex-date by making a suitable replacement, said NSE. “No replacement (inclusion) will be made in case of indices with variable number of companies,” it added.
The change would be applicable to scheme of arrangement of all companies involving demerger which may be approved by equity shareholders of respective companies on or after April 30.