Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Open offer price: CNBC Interview

I was interviewed by CNBC today morning on whether the open offer
pricing norms need to be changed to account for the steep fall in
Satyam share price after the exposure of the fraud. The CNBC web site
has the transcript
and the video. The
key passage from the interview is the following:

We need to make changes in the open offer which are not specific to
Satyam but general enough to cover all cases. When we are talking
about a company which is very liquid … one should assume that what
is happening in the market is a fair reflection of its fair value and
simply allow people to buy at a price which is dictated by the

The whole idea of 26-week average … essentially reflects a
distrust of market prices – a belief that market prices can be
manipulated. I think that belief is inapplicable when we are talking
about a very liquid stock. So, I think the way we should move forward
is to say … 26 weeks average is not required when we are
talking about a stock which is reasonably liquid.

We might say top 100 stocks, top 500 stocks or we might go by
impact cost or we might say that anything on which the derivatives are
allowed to trade where there is a reasonable degree of openness and
resilience about the market price there is no need to average
anything. The latest price is the measure of what the share is


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