Market regulator Sebi plans to streamline disclosure framework

Suggests halving disclosure timeline to 12 hours; proposes mandating top 250 listed firms to confirm/deny media reports

The Securities and Exchange Board of India (Sebi) has plans to give a fillip to disclosure requirements to encourage better information symmetry at listed firms. 

Under the current regulations, companies need to disclose any event such as acquisition, merger, demerger, restructuring, or sale of any unit which will have an impact on the business.

In its consultation paper dated November 12, Sebi has proposed new thresholds for so-called ‘material disclosures’.

Under this, if an event is expected to impact at least 2 per cent of a company’s turnover, 2 per cent of net worth, or 5 per cent of the three-year-average profit or loss after tax will be seen as ‘material disclosure’. 

The need for quantifying a material event has been felt as many entities have purportedly not been disclosing such events on the ground that they are not considered material by them, according to their materiality policy.

The capital markets regulator is also considering halving the time provided to companies for disclosure from 24 hours to 12. Furthermore, in the case of decisions taken in a board meeting, it has been proposed to disclose the information within 30 minutes.

Sebi has also proposed a specific provision to mandate confirmation or denial by the top 250 listed entities on material information reported by the media. For confidential information, the regulator may later come up with a guidance for such disclosures.

The regulator also plans to make disclosure of cybersecurity incidents or breaches or loss of data and documents arising from any such cases in the quarterly corporate governance report by the listed company as immediate disclosures may lead to vulnerability. However, disclosure of such events is necessary for investors to understand the associated risks and impact.

While the regulator has already specified dissemination of information under the Sebi (Listing Obligations and Disclosure Requirements, or LODR) Regulations, there have been frequent non-compliances, inviting fines and penalties.

“In certain instances, it was observed that the disclosure of an event by the listed entity was made at the last hour, by which time the information about the said event had already been circulated publicly in the media. At times, the information had to be disclosed by listed entities only after queries were raised by stock exchanges based on media reports,” noted Sebi in its consultation paper.

Comments from the public on the consultation paper can be submitted by November 27, following which, Sebi might amend the LODR Regulations to effect some of the proposed changes.

Curbing Information Asymmetry

• Proposes new thresholds for material disclosures by listed entities
• Impact on turnover, net-worth, PAT/loss to be considered the thresholds
• Cybersecurity breaches to be disclosed quarterly
• For confidential information, Sebi may come up with a guidance later