Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Mon, 02 Feb 2009

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 market.

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 worth.

Posted at 17:16 on Mon, 02 Feb 2009     View/Post Comments (5)     permanent link