In a bid to strengthen disclosure and curb ambiguity for companies while complying with the listing regulations, the Securities and Exchange Board of India (Sebi) has issued a set of draft norms on Tuesday that specify events that may be considered material or price sensitive and will have to be disclosed on their occurrence.
Among other things, the companies will be required to disclose board’s decision on dividend, cash bonus, buyback of securities and fund raising within fifteen minutes of the board meeting getting over.
Events that will be considered material and price-sensitive under the draft regulations include — commencement or postponement in the date of commercial production, change in general character or nature of business, closure of operations of any unit, acquisition, merger, de-merger or sale or disposal of any unit, etc.
Impact of change in regulatory framework, litigations, ratings revision and frauds by directors and employees also figure in the list of events that will be considered material and price-sensitive.
Not leaving any discretion with companies to identify whether an event /information is material or not, Sebi has, in the draft regulations, drawn quantitative and qualitative criteria which they will have to follow while identifying if the event/information is material.
It has enlisted price impact test (any information which if published is likely to materially affect share price) and reasonable investor test (information that affects assets and liabilities and the financial condition of the company) for listed companies to determine whether a particular information is price sensitive.
Pointing out the need for review of existing rules, Sebi said that it did not want to leave the necessity of disclosing an event at the discretion of the listed entity.
“Liberal interpretations, on what constitute ‘materiality’ and whether to disclose the event/information to the Stock Exchanges, taken by listed entities has resulted in inadequate disclosure levels in the securities market. Such liberal interpretations have also led to lack of uniformity in disclosures by various listed companies,” said Sebi in its discussion paper on which it has invited public comments till September 12, 2014.
While legal experts welcomed the move to strengthen continuous disclosure, they feel that companies that do not comply with the existing regulations will look to further avoid the same.
“It is a good idea to strengthen continuous disclosure but there should be a cost-benefit analysis before implementing. Sebi should focus more on enforcing the existing regulations before raising the bar,” said Sandeep Parekh, founder, FinSec law Advisors.
The draft listing regulations further specify that all material events and all price sensitive information shall be disclosed to the stock exchanges within a day of the occurrence of the event and in case there is delay in such disclosure, they will have to provide a suitable explanation for the same. Not only this, the companies will also be required to disclose all such information on their website through links to stock exchanges.
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