Leakage of floor price in OFS and proposed surveillance approach for Indian capital markets

Purpose - This study investigates potential floor price leakage during Offer for Sale (OFS) announcements in Indian capital markets. It aims to identify market anomalies and propose enhanced surveillance mechanisms to improve market integrity. Design/methodology/approach - Employing a quantitative research methodology, the study analyses 39 OFS cases from March 2012 to July 2023 on the National Stock Exchange (NSE) of India. It uses regression analysis, Karl Pearson’s correlation and chi-square tests to examine price movements in the cash and derivatives segments. Data were sourced from NSE Cogencis and Bloomberg terminals. Findings - The analysis reveals significant price declines in both cash and derivatives segments before OFS announcements for PSU companies, indicating symptoms of floor price leakage. For non-PSU companies, such patterns were observed only in the cash segment. These findings underscore the need for stricter pre-OFS surveillance. Research limitations/implications - The study’s findings advocate for enhanced regulatory oversight for OFS to address potential manipulation. Future research could expand on this by including broader datasets and examining other segments of the OFS mechanism. Practical implications - India’s OFS mechanism highlights the importance of robust surveillance and offers valuable lessons for global markets. Policymakers and regulators can use the insights provided by this study to develop effective frameworks to protect investor interests and enhance market efficiency. Regulators worldwide can adopt these measures to address information asymmetry, enhance transparency and prevent the leakage of price-sensitive information. These strategies can serve as a blueprint for fostering fair trading practices, strengthening regulatory effectiveness and ensuring market stability across jurisdictions. Social implications - By improving market fairness and transparency, the research supports more equitable market participation and bolsters investor confidence, which is crucial for the overall stability and integrity of financial markets. Originality/value - This paper provides empirical evidence of information asymmetry linked to OFS mechanisms, offering critical insights for regulatory reforms. It highlights vulnerabilities in the OFS and suggests targeted measures to safeguard market fairness.