Industry Standards for Verification of Market Rumours: SEBI

Recently, Inter-alia SEBI came up with the New Initiative for Enhanced Transparency and Compliance. Let's start this article with a brief introduction to the circular.

SEBI took a big move that aimed at improving transparency in the market and the ease of doing business. The Industry Standards Forum (ISF), composed of representatives from the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Confederation of Indian Industry (CII), and the Federation of Indian Chambers of Commerce and Industry (FICCI), had developed the new industry standards.

The above standards were formulated in consultation with the Securities and Exchange Board of India, and under the aegis of the Stock Exchanges, they focus on the effective implementation of the requirement to verify market rumors as stipulated under Regulation 30(11) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

Background

Market rumors can significantly impact investor sentiments as well as stock prices. Unverified information can lead to excessive market volatility, which may mislead investors, as well as raise questions about the integrity of the financial markets.

To recognize the above challenges wrt. excessive volatility, SEBI mandated the verification of market rumors for listed entities under Regulation 30(11) of the LODR Regulations. These new industry standards, which were developed by the ISF, generally aim to streamline the above process to ensure timely and accurate verification of information along with disclosure of market-related information.

Key Provisions of the New Industry Standards

Scope and Applicability

The industry standards will be applicable to the top 100 listed entities from June 1, 2024, and to the next 150 listed entities (the top 250 in total) from December 1, 2024. This approach, which is in a phased manner as discussed above, allows large companies to slowly adapt to these new requirements.

Verification Process

Listed entities are required to establish robust internal mechanisms to monitor and verify market rumors. This includes setting up dedicated teams or departments responsible for tracking market chatter and ensuring prompt verification.

Disclosure Requirements

Upon verifying a market rumor, entities must make prompt public disclosures through official stock exchange channels. This ensures that all investors have equal access to verified information, reducing the risk of misinformation and market manipulation.

Coordination with Stock Exchanges

The stock exchanges, in coordination with the industry associations that I discussed above, i.e., ASSOCHAM, CII, and FICCI, shall be responsible for overseeing the implementation of these standards. Exchanges are required to bring the circular to the notice of their listed entities, ensuring compliance.

Training and awareness

To facilitate smooth adoption, the ISF, along with stock exchanges, will conduct training sessions and awareness programs for listed entities. This will help companies understand the nuances of the new standards and effectively integrate them into their operational frameworks.

Implementation Timeline

As I discussed above, from June 1, 2024, compliance will be mandatory for the top 100 listed entities, whereas from December 1, 2024, Compliance will be mandatory for the next 150 listed entities, totaling the top 250 listed companies by year-end.

SEBI's Role and Oversight

SEBI, leveraging its powers under Sections 11(1) and 11A of the SEBI Act, 1992, along with Regulation 101 of the LODR Regulations, will oversee the adherence to these new standards. SEBI's involvement underscores the importance of these measures in maintaining market integrity and protecting investor interests.

Conclusion

The introduction of industry standards for the verification of market rumors marks a pivotal step towards enhancing transparency and accountability in the Indian financial markets. By ensuring that listed entities follow a standardized approach to rumor verification and disclosure, the ISF, in collaboration with SEBI and the stock exchanges, aims to foster a more informed and stable market environment. As these standards come into effect, they promise to build investor trust and confidence and contribute to the overall health of the capital markets in India.

For further details and the official circular, listed entities and stakeholders can refer to the SEBI circular dated January 25, 2024, available on the SEBI and stock exchange websites.

The author can also be reached at aman.rajput@mail.ca.in.