SEBI’S PLANS TO TACKLE MARKET RUMOURS

Background:

The Securities and Exchange Board of India (SEBI) on November 12 floated a consultation paper proposing measures to effectively tackle market rumours. It reviewed disclosure requirements for material events and information under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

What was the need for review?

  • The central premise of the proposal is to ensure timely disclosure of significant events that may have a bearing on the price of a scrip.
  • SEBI notes that while regulatory actions against non-disclosure of events do act as a deterrent for listed entities to withhold details of material events or information, timely disclosure is still very important.
  • SEBI also seeks to ensure that unverified rumours do not shake investor confidence and affect decision-making.
  • Listed entities too have sought that the regulator institute a certain uniformity in its guidance for disclosures, to help them better determine what constitutes a material event or information.
  • In a related context, the market regulator pointed to provisions that require companies to put forth specific and adequate replies to all rumour verification queries raised by the exchanges.
  • This could be with respect to certain ‘information’ circulating on social media or any other platform. It proposes that entities should confirm or deny any such reported event or information.

What disclosures are being proposed?

  • The proposed measures are directed towards preventing any false market sentiment or impact on the securities of a company.
  • Recognising the “growing influence” of print, television and digital news media, it argues that companies need to keep pace and ensure that any rumours are verified or refuted.
  • Thus, it is proposed that the top 250 listed entities, based on market capitalisation at the end of the previous assessment year, would have to clearly deny or refute such rumours.
  • It proposes companies disclose all information whose expected impact in terms of value exceeds 2% of either its turnover or net-worth as per the last audited financial statement, or 5% of the three-year average of absolute value of profit/loss after tax.
  • In order to avoid information asymmetry, SEBI has proposed that the listed entities need to also disseminate any communication with regards to the company made by its directors, promoters, key managerial personnel or senior management individually and not through the company.
  • It recognises that it is difficult for an investor to keep track of multiple newsworthy announcements from diverse avenues.
  • To this effect, it proposes that companies inform about any ratings actions, even if it was not requested for by the company or if a request was withdrawn.
  • Further, companies also need to disclose any actions initiated by a regulatory, statutory, enforcement or judicial authority against any of its directors, key managerial personnel, senior management, promoter or subsidiary in relation to the entity.
  • These may include investigation, suspension, imposition of penalty or fine, settlement of proceedings, debarment, sanctions, warnings, search, seizure, and default on the payment of fines, penalties and dues among others.
  • The mentioned measure would thus, prevent information asymmetry as it would streamline access to verified information.
  • Other than this, the proposals also recognise the material importance of key personnel, senior management and directors to investors.
  • They instil confidence in the functioning and affairs of the company.
  • To this effect, it proposes that entities inform the exchange about their resignation(s) within seven days. Along similar lines, companies must also disclose if the MD/CEO is not available to discharge their duties for greater than a month.

Are timelines being revised?

  • The regulator observed that there was a need for quicker disclosure of material events since ‘information’ permeates very fast on social media and digital media.
  • It makes a note of several instances where the disclosures were made only after the news had already circulated in the media.
  • At times, the information was disclosed only after the exchange raised a query to the company.
  • Therefore, SEBI proposes that disclosures pertaining to events or information emanating from within the company be made within twelve hours instead of the existing mandate of twenty-four hours.
  • The cut-off remains unchanged for events emanating from external occurrences. Moreover, all decisions taken in a Board of Directors meeting are to be disclosed within thirty minutes from when it concludes.
  • Companies must also inform, two days in advance, if any investor or analyst meet is scheduled.

SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB

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