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SEBI revises Market Capitalization Computation Basis for LODR Regulations

Published on May 21, 2024
Current Context: The Securities and Exchange Board of India (SEBI) has indeed revised the method for calculating the market capitalization of listed companies under the Listing Obligations and Disclosure Requirements (LODR) Regulations.
SEBI revises Market Capitalization Computation Basis for LODR Regulations
  • Change in Calculation Method: The market capitalization calculation method has been revised from a single day’s market cap to an ‘Average Market Capitalization’ over a defined period.
  • Impact on Companies: The amendments will impact the Top 100/top 250 companies based on market capitalisation. For the rest of the companies, the framework is still voluntary.
  • Ranking for Compliance: The ranking for compliance will now be based on the average market capitalization from July 1 to December 31, with December 31 as the cut-off date.
  • Transition Period: After the ranking is determined on December 31, there is a three-month transition period (or until the start of the next financial year, whichever is later) before the relevant LODR provisions apply.
  • LODR Provisions: These provisions include requirements for appointing an independent woman director, having at least six directors on the board, board meeting quorum, risk management committee, rumour verification, directors and officers insurance for independent directors, dividend distribution policy, Business Responsibility and Sustainability Report, holding the AGM within five months of the financial year’s end, and live webcasting AGM proceedings.
  • Objective: This adjustment aims to provide a more accurate reflection of a company’s market size by averaging its market capitalisation over six months, addressing daily fluctuations in market dynamics.

Question:

Q1. What is the new method for calculating the market capitalization of listed companies under the LODR Regulations?

  • A) Single day’s market cap
  • B) Average Market Capitalization over a defined period
  • C) Total assets of the company
  • D) Total number of shares issued by the company

Answer: B) Average Market Capitalization over a defined period

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