NSE Indices tweaks methodology of Nifty equity indices for corporate mergers

The move is expected to help in reducing churn in index constituents resulting from corporate action involving demergers, NSE Indices said in a statement.

If for two consecutive days the spun-off business does not hit the price band then it would be removed after the third trading day of such observation.

NSE Indices, an arm of the National Stock Exchange (NSE), on Wednesday tweaked the methodology of Nifty equity indices for handling corporate actions involving demerger.

The move is expected to help in reducing churn in index constituents resulting from corporate action involving demergers, NSE Indices said in a statement.

Under the new methodology, the demerged company will be retained in the Nifty index if Special Pre Open Session (SPOS) is conducted by the exchange.

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Additionally, the spun-off business would be included in the index at a constant price -- which is the difference between the demerged company's closing price on T-1 day and the price derived during SPOS on the ex-demerger date.

T-1 day wherein T is the ex-demerger date.

The spun-off business, which is the newly listed entity, would be removed from the index after the end of the day on the third day of its listing. If in the first two days, the spun-off business hits the price band in each day, then the exclusion date would be deferred by another three days.

If for two consecutive days the spun-off business does not hit the price band then it would be removed after the third trading day of such observation.

In case on the third-day, the spun-off entity hits the price band the exclusion of such stock would not be deferred, the statement said.

If a SPOS is not conducted by the exchange, the demerged company would be removed from the index at the beginning of T-1 day by making a suitable replacement in case of indices with a fixed number of companies.

No inclusion will be made in the case of indices with a variable number of companies.

Under current rules, the demerged company is excluded from the index, and the same is replaced with another eligible stock, soon after the equity shareholders approve of a scheme of arrangement for the demerger of a company.

Moreover, the demerged company is excluded from the index soon after the equity shareholders approve a scheme of arrangement for the demerger of a company without making a replacement in the index.

The new framework will 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, NSE Indices said.

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