Sebi moots stringent norms for timely, adequate disclosures

To ensure "timely and adequate" disclosures, Sebi today proposed a detailed set of norms for listed companies that require them to disclose price sensitive information within a day along with the reasons for such developments.

The companies will have to explain the delay if such disclosures are not made in a day, Sebi said while giving an exhaustive list of developments that can be price sensitive in nature.

Taking note of laxity in disclosures made by listed entities, the capital market watchdog has sought to define "material transactions" to make sure the price sensitive information are disseminated to stock exchanges on a timely basis.

In its discussion paper, the Securities and Exchange Board of India (Sebi) has suggested that listed companies would have to inform stock exchanges about all events which are material in nature, price sensitive and have bearing on overall business performance.

These disclosures need to be made within a day from the the occurrence of the event. These include information with respect to its unlisted subsidiaries.
"In cases where the disclosures are made after one day, listed entity shall, along with such disclosure provide suitable explanation for delay in making disclosure," the paper said.

Besides, firms are required to make periodic disclosures on the associated material developments till such time the matter is resolved.

"Liberal interpretations, on what constitutes '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," the paper said.

According to the paper, a listed company should explain and give reason for change in key managerial personnel, including in instances of resignation.

In case of appointment of a director, the company is also required to disclose relationships between directors (if any) within one day of appointment.

While noting that materiality has to be determined on a case to case basis, Sebi has suggested a quantitative criteria calculated as a percentage of gross turnover.

As per the paper, any information that could influence investor decisions such as those that have an impact on a company's assets and liabilities and financial condition could be considered as price sensitive.

The discussion paper on review of clause 36 and related clauses of Equity Listing Agreement is open for public comments till September 12.

Under the indicative list of material and price sensitive information, the discussion paper has mentioned various activities including commencement or postponement of commercial operations, change in general character of existing business, strategic arrangements and de-mergers.

In case of restructuring, the company has to provide details and reasons as well as the overall impact to the exchanges.

According to the 26-page discussion paper, listed companies should also disclose details about product launch, capacity addition, and awarding of contracts, among others.

With regard to securities or derivatives that are listed overseas, Sebi has proposed that disclosures about them should be simultaneously on the concerned Indian as well as foreign bourses.

"The quality of disclosures that are currently being made by the listed entities under the existing provisions, also points to the need for detailed rules governing continuous disclosures.

"Continuous, adequate, accurate and timely disclosure of information on an ongoing basis would achieve parity while enabling investors to make informed investment decisions," it said.

The proposals have been prepared after reviewing practices in some of the international jurisdictions and after having  discussions with various market participants, including bourses and industry representatives.