The stock of TVS group company, Wheels India, zoomed 20 per cent to hit the upper circuit (Rs 888) on Friday, following an open offer by its foreign promoter (Titan Europe). Titan International recently hiked its stake in Titan Europe, which holds 35.91 per cent in Wheels India, to 100 per cent. With this, Wheels India is now a subsidiary of Titan International.

This triggered an open offer, as SEBI guidelines mandate open offer to public shareholders in the event of change in promoter’s ownership pattern . The TVS group, through its group companies (Southern Roadways, Sundaram Finance) and holding company TV Sundaram Iyengar and Sons holds 49.7 per cent stake in Wheels India. The open offer is for the balance 14.39 per cent, held by the public.

The offer raises two questions — one, whether the Indian promoter (TVS group) will give up its controlling stake. Two, whether the company may eventually delist. On the first question, the TVS group has the option of buying shares from the open market to retain its controlling stake in Wheels India.

Second, Wheels India on Friday announced its plans to increase public shareholding to 25 per cent, through a QIP or other modes. While this is in compliance with the SEBI regulation mandating 25 per cent public holding in all listed companies by June 2013, the probability of an immediate de-listing remains low. Pending clarity, shareholders of Wheels India may continue to hold the stock . Though the offer price has been fixed at Rs 725/share, given the sharp run up in the stock price, upward revision in the open offer price cannot be ruled out.

Price bands in derivatives

The market regulator, SEBI (Securities and Exchanges Board of India), has asked exchanges to put in place requisite checks to prevent sudden price swings in stocks. This move was largely prompted by the flash crash on the National Stock Exchange in October. Erroneous order worth Rs 650 crore punched by a dealer at brokerage firm, Emkay Global, led to a 15 per cent slide in Nifty Index.

This episode has reiterated the exigent need for implementing stringent quantity as well as value checks at both the broker as well as the exchange level. Exchanges have been asked to implement dynamic price bands or dummy filters for stocks on which derivatives are available, such as stock futures and index futures. This filter will be at 10 per cent (in either direction) of the previous day’s closing price. If the price trends strongly in either direction, exchanges can increase the filter by an additional 5 per cent.

SEBI has also laid down that stock exchanges should not accept orders with value exceeding Rs 10 crore in stocks, exchange traded funds, index futures and stock futures. The software interface at brokers end should have limits on both the value and quantity of the orders placed by their clients. This will act as the primary check. Besides this, stock exchanges should monitor the outstanding positions of each broker, during the trading session. If these positions exceed 90 per cent of the collaterals given by the broker to the exchange, then their system should be disabled.

While these moves can hamper price discovery, the pervasion of computer driven trades with minimal human intervention, has made such checks necessary.

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