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Analysis of the Review of Continuous Disclosure Requirements for Listed companies by Securities Exchange Board of India

Background

Securities Exchange Board of India {in short, SEBI} has very recently reconsidered the requirements pertaining to disclosures being made by the listed companies on a continuous basis. This has been done to enable the investors in the stock markets to make well informed investment decisions and curb malpractices therein.

The following changes to the proposed SEBI (Listing Obligations and Disclosure Requirements) Regulations { in short, proposed SEBI Regulations} have been approved by SEBI which have been analysed herein:

Disclosure of events/information

(i)   The listed entity shall make the disclosure of all events/information, first to stock exchange(s), as soon as reasonably practicable and not later than 24 hours of occurrence of event/information.

Comments

This is in contrast to the existing provision in Clause 36 of listing agreement which mandates a listed company to immediately intimate to the Stock Exchanges of events such as strikes, lock outs, closure on account of power cuts, etc. and all events which will have a bearing on the performance / operations of the company as well as price sensitive information. Further, a list of material events has also been laid down. These need to be done both at the time of occurrence of the event and subsequently after the cessation of the event in order to enable the security holders and the public to appraise the position of the listed company and to avoid the establishment of a false market in its securities.  Thus more time is proposed to be allowed to the companies to make the disclosure which is a more practical approach by SEBI. 

Outcome of Board meetings

(ii)  Disclosure of outcome of board meetings shall be made within 30 minutes of the closure of the meeting of Board of Directors.

Comments

As per Clause 41 of the Listing Agreement the financial results shall be submitted to the stock exchange within fifteen minutes of conclusion of the meeting of the Board or Committee in which they were approved. As per Clauses 20 & 22 of the listing agreement a listed company is required to make specified disclosures immediately to the Stock Exchanges where the company is listed after meeting of its Board of Directors. The “immediate” stipulation has been elaborated as disclosure to be made within 15 minutes of the closure of the board meeting.  This time limit is proposed to be increased in the proposed SEBI Regulations which is welcome.

Updation of disclosure

(iii)  In addition to current requirement of making disclosure at the time of occurrence and after the cessation of the event, updation of disclosure on material developments shall also be made on a regular basis till such time the event/information is resolved/closed with explanations wherever necessary.

Comments

As can be seen from the comments in respect of  Clause 36 herein before, the existing position is that   information has to be given both at the time of occurrence of the event and subsequently after the cessation of the event. But additionally this SEBI proposal states that updation of disclosure on material developments shall also be made by the listed company on a regular basis. This shall continue to be given by it till such time the event/information is resolved/closed with suitable explanations, wherever required.  This will ensure continuous dissemination of information by the company resulting in expected transparency.

Disclosure in web site

(iv) The listed entity shall disclose on its website all events/information which is material and such information shall be hosted for a minimum period of 5 years and thereafter as per the archival policy of the listed entity, as disclosed on its website.

Comments

Existing Listing agreement mandates posting of numerous matters in the website by a listed company. For example in terms of Clauses 32, 41, 47, 49, 54 & 55 of the listing agreement there are specific requirements to post the details of the events/ information in the Company’s web site. These specifics presumably will be stipulated by SEBI in the proposed SEBI Regulations. Moreover the hosting of information for minimum five years and establishing of an archival policy by the listed company are new proposals which are laudable.  

Disclosure of material subsidiaries

(v) The listed entity shall disclose all events or information with respect to subsidiaries which are material for the listed entity.

Comments

In terms of the new Clause 49 regarding corporate governance which came into force w.e.f. 1-10-2014  the provisions relating to subsidiary and material subsidiary companies have been made very stringent and elaborate. In addition Clause 32 provides for consolidation of accounts of parent and subsidiary companies and disclosure of various financial information like loans, advances etc amongst them. Clause 41 relating to disclosure of financial results also provides in this regard. It has to be seen what further disclosures will be mandated by SEBI in the proposed SEBI Regulations.

Clarifications by companies

(vi) The listed entity shall provide specific and adequate reply to queries of stock exchange(s) with respect to rumours and may on its own initiative also, confirm or deny any reported information to the stock exchange(s).

Comments

The stock exchange have been seeking clarifications from the listed companies, from time to time, about market rumours and other information floating in the market together with various news relating to price sensitive information which have not been intimated to the stock exchanges by such companies. Many times companies also furnish clarifications to the exchanges. These are now to be given specific legal clothing and ensure better disclosure compliances.   

Factors of materiality

(vii) In order to determine whether a particular event/information is material, the listed entity shall consider following criteria:

(a) the omission of an event/information, which is likely to result in discontinuity / alteration of information already available publicly; or result in significant market reaction if the said omission came to light at a later date;

(b) if in the opinion of the Board of Directors of the listed entity, the event /information is considered material.

Comments

The provision relating to whether particular event/information is material has the genesis in the law of Unpublished Price Sensitive Information {UPSI} under existing SEBI Insider Trading prohibition law and the new SEBI (Prohibition of Insider Trading) Regulations, 2015.  The new law has defined it as information which is not generally available and which may materially affect the price of securities on coming into public domain. Illustrative guidance of UPSI has also been given therein. The term “price sensitive information”  which is non public has also been used section 195 of the Companies Act 2013 and defined to mean any information which relates, directly or indirectly, to a   company and which if published is likely to materially affect the price of securities of the company. In the proposed SEBI Regulations these provisions will be essentially kept in view.  

Policy of materiality

(viii) The Board of the listed entity shall frame a policy for determination of materiality, which shall be disclosed on its website.

Category of material events

(ix) Rationalization, consolidation, enhancement and categorization of existing list of events into two parts:

(a) Events which are by nature material i.e. those that necessarily require disclosure without any discretion by the listed entity.

(b) Events which shall be construed to be material based on application of the guidelines for materiality, as specified by SEBI.

Comments on Proposals {viii} and {ix}

The listed companies requiring to frame a Policy for determination of Materiality is a new concept and essentially while framing that Policy the existing provisions of various laws including that of SEBI will have to be kept in view. As regards those events which are material and hence compulsorily required to be disclosed to the stock exchanges, the same have already been listed out in Clause 36 and in new SEBI Insider Trading Regulations. The proposed SEBI Regulations will have to be in consonance with these provisions. They will be easier to comprehend and comply. However, events which will be construed to be material based on proposed SEBI guidelines and the said Materiality Policy are expected to have wider impact, will be interpretation oriented and more subjective. Hopefully there will be clarity on the provisions for easy compliance.            

Statutory list of disclosures

(x) SEBI to specify an indicative list of information which may be disclosed upon occurrence of an event.

Comments

This will obviously be clear once the proposed SEBI Regulations come into force and it is expected to be diligently followed by listed companies. Such list should be in line with the illustrative guidance of UPSI and the list given in Clause 36.

Conclusion

Adequate and timely disclosure of unpublished / non public price sensitive information by listed companies is anticipated to minimise the evils of insider trading of the listed securities and maintain order in the stock markets lessening its manipulations & false markets. It has to be seen to what extent the law in this regard finally takes shape.    

AMITAV GANGULY 


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Category Corporate Law, Other Articles by - Amitav Ganguly 



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