Frequently traded shares
Also written Frequently traded shares (SAST)
Shares whose traded turnover over a set look-back is at least 10% of the total shares of that class — 240 trading days under the ICDR Regulations, twelve calendar months under the SAST Regulations.
In plain language
Several SEBI pricing rules want to use the market price of a share — a volume-weighted average over some weeks — as the floor for a deal. That is only fair if the market price means something. A share that barely trades can be pushed to any price by a handful of orders.
Frequently traded shares is the test that decides whether the market price may be trusted. It asks a simple question: over the look-back period, did the number of shares that changed hands reach at least ten percent of all the shares of that class? If yes, market-price formulas apply. If no, the price must come from a valuation instead.
The catch for the exam is that the workbook carries two definitions of the same phrase.
How it works
Definition 1 — ICDR Regulations, preferential issues (Chapter 6). Shares of the issuer in which the traded turnover on any recognised stock exchange during the 240 trading days preceding the relevant date is at least ten percent of the total number of shares of that class.
Definition 2 — SAST Regulations, takeovers (Chapter 7). Shares of the target company in which the traded turnover on any stock exchange during the twelve calendar months preceding the calendar month in which the public announcement is required is at least ten percent of the total number of shares of that class.
Common to both. Where the share capital of that class was not the same throughout the period, the weighted average number of total shares of the class is used as the denominator.
Borrowed definition. For exit offers to dissenting shareholders (Chapter 8), "frequently traded shares" has the meaning in the SAST Regulations.
What turns on it.
| Context | If frequently traded | If not | Chapter |
|---|---|---|---|
| Preferential issue pricing (listed 90+ trading days) | Not less than the higher of the 90 trading days VWAP and the 10 trading days VWAP before the relevant date | Price takes into account book value, comparable trading multiples and customary parameters; independent registered valuer's certificate to the exchange | 6 |
| SAST offer price (direct acquisition) | One parameter is the 60 trading days VWAP on the exchange with maximum volume | Price by an independent registered valuer using customary parameters | 7 |
| SAST payment in shares | Shares offered as consideration must be listed and frequently traded | Cannot be used | 7 |
| SAST escrow | Deposit of frequently traded and freely transferable shares allowed, with margin | Not eligible | 7 |
| SAST inter-se transfer exemption | Price not more than 25% above the 60 trading days VWAP | Not more than 25% above the valuer-based price | 2 |
The formula
Turnover ratio = Shares traded in the look-back period
÷ Total shares of that class
(weighted average if the class changed during the period)
Frequently traded if Turnover ratio ≥ 10%
Look-back: ICDR (preferential issue) = 240 trading days before the relevant date
SAST (open offer) = 12 calendar months before the calendar month
in which the public announcement is required
A worked example
Illustrative figures. Coromandel Chemicals Ltd had 4 crore shares for the first 120 trading days of the look-back and 6 crore for the next 120, after a rights issue.
Weighted average shares = (4 × 120 + 6 × 120) ÷ 240 = 5 crore
10% threshold = 50 lakh shares
ICDR test for a preferential issue. Turnover over the 240 trading days before the relevant date: 52 lakh shares → 10.4% → frequently traded. The issuer has been listed for well over 90 trading days, so the floor price is the higher of:
| Measure | Price |
|---|---|
| 90 trading days VWAP | Rs 412 |
| 10 trading days VWAP | Rs 436 |
Allotting 20 lakh shares at not less than Rs 436 raises at least Rs 87.2 crore (20,00,000 × 436).
SAST test, six weeks later. An acquirer triggers an open offer. Turnover over the twelve calendar months before the month of the public announcement is 45 lakh shares against the same 5 crore base → 9% → not frequently traded for SAST.
So the 60-trading-day VWAP parameter is unavailable, the offer price needs an independent registered valuer, and the acquirer cannot offer its own listed shares as consideration unless those are frequently traded.
One company, one month apart, on both sides of the line — because the two regulations measure different windows.
Why NISM asks about it
Chapter 6 (Issue Management – General Obligations of Merchant Bankers and Due Diligence) defines it for preferential issue pricing; Chapter 7 (Other Merchant Banking Activities – Mergers, Acquisitions & Takeovers) defines it for the SAST Regulations and uses it in offer price, payment and escrow rules; Chapter 8 borrows the SAST meaning for dissenting shareholder exits; Chapter 2 uses it in the inter-se transfer exemption.
Expect the look-back period to be tested — 240 trading days versus twelve calendar months — and the 10% threshold.
Common exam traps
- Two definitions. ICDR: 240 trading days before the relevant date. SAST: twelve calendar months before the calendar month of the public announcement.
- The test counts shares, not rupees. Turnover is the number of shares traded against the total number of shares of the class.
- "At least ten percent" — exactly 10% qualifies.
- Use the weighted average number of shares if the class changed during the period.
- ICDR looks at "any recognised stock exchange"; the SAST definition says "any stock exchange" — either way, one exchange meeting the test is enough.
- Dissenting shareholder exits use the SAST meaning, not the ICDR one.
- Infrequently traded ≠ untradeable. It only switches the price source from market data to valuation.
Check yourself
1.Which of these is NOT a parameter for determining the open offer price in a direct acquisition of frequently traded shares?
- a)The book value per share as certified by the target company's auditor
- b)The volume-weighted average price of the acquirer's acquisitions during the fifty-two weeks preceding the public announcement
- c)The highest price paid for any acquisition during the 26 weeks preceding the public announcement
- d)The volume-weighted average market price for 60 trading days preceding the public announcement
Show the answer
Answer: (a) The book value per share as certified by the target company's auditor
Book value is a parameter only where the shares are not frequently traded, and then as one input to a valuer's opinion, not a stand-alone figure certified by the target's auditor.
Where the shares are not frequently traded, the price [is] determined by an independent registered valuer taking into account valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies.
The parameters for a direct acquisition of frequently traded shares — highest of:
(a) The highest negotiated price per share of the target company for any acquisition under the agreement attracting the obligation to make a public announcement of an open offer
(b) The volume-weighted average price paid or payable for acquisitions, whether by the acquirer or by any person acting in concert with him, during the fifty-two weeks immediately preceding the date of the public announcement
(c) The highest price paid or payable for any acquisition... during the 26 weeks immediately preceding the date of the public announcement
(d) The volume weighted average market price of such shares for a period of 60 trading days immediately preceding the date of the public announcement as traded on the stock exchange where the maximum volume of trading... are recorded during such period
(f) the per share value computed under sub-regulation (5), if applicable.
Clause (d) has an exception: it shall not apply in the case of disinvestment of a public sector undertaking by the Central Government or a State Government, and then only in case of a change in control in the public sector undertaking.
Two additions widen the negotiated price. Convertibles held by the acquirer count at their conversion price, and the price paid shall include any price paid or agreed to be paid for the shares or voting rights in, or control over the target company, in any form whatsoever,... whether termed as control premium or as non-compete fees or otherwise.
"Frequently traded" here means turnover during the twelve calendar months preceding the calendar month in which the public announcement is required to be made of at least ten per cent of the total number of shares of such class.
2.For preferential issue pricing under the ICDR Regulations, when are an issuer's shares 'frequently traded'?
- a)When the traded turnover on any recognised stock exchange during the 240 trading days preceding the relevant date is at least ten percent of the total number of shares of that class
- b)When the traded turnover during the twelve calendar months preceding the month of the public announcement is at least ten percent of the total shares
- c)When the shares trade on at least 90 of the last 120 trading days
- d)When daily turnover exceeds ₹1 crore on average
Show the answer
Answer: (a) When the traded turnover on any recognised stock exchange during the 240 trading days preceding the relevant date is at least ten percent of the total number of shares of that class
240 trading days, ten percent. The ICDR definition: 'Frequently traded shares' means the shares of the issuer, in which the traded turnover on any recognised stock exchange during the 240 trading days preceding the relevant date, is at least ten percent of the total number of shares of such class of shares of the issuer. Where share capital changed during the period, the weighted average number of total shares is used.
- Twelve calendar months before the public announcement — that is the SEBI SAST (takeover) definition in Chapter 7. Same ten percent, different look-back — a classic trap.
- 90 of 120 days and ₹1 crore turnover — no such tests exist.
For infrequently traded shares, the price must reflect book value, comparable trading multiples, and such other parameters, supported by a certificate from an independent registered valuer.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Reverse book buildingThe bidding process by which the exit price in a voluntary delisting is discovered from public shareholders above a fixed floor price, instead of being set by the acquirer.
- Preferential issueAn issue of specified securities by a listed issuer to a select person or group on a private placement basis — excluding public, rights, bonus and ESOP issues, QIPs, sweat equity and overseas depository receipts.
- Escrow accountThe security an acquirer must deposit before a takeover open offer — 25% of the first Rs 500 crore of consideration plus 10% of the balance — so that the money to pay tendering shareholders is ring-fenced.
- Manager to the open offerThe SEBI-registered merchant banker, not an associate of the acquirer, appointed before the public announcement to run an open offer and answer to SEBI for its funding, disclosures and escrow.
- Persons acting in concertPersons who, with a common objective of acquiring shares, voting rights or control of a target company, co-operate under a formal or informal agreement — plus categories the SAST Regulations deem to act in concert.
- TakeoverThe acquisition of substantial shares or voting rights in a company for the purpose of seeking management control — regulated for listed companies by the SEBI (SAST) Regulations, 2011.
- AcquirerUnder the SEBI takeover code, any person who acquires — or agrees to acquire — shares, voting rights or control over a target company, alone, through another, or with persons acting in concert.
- Dissenting shareholdersShareholders who voted against the resolution for a change in objects, or a variation in the terms of a contract referred to in the prospectus — and who must therefore be offered an exit.