Sebi wants companies to disclose 'real' risks

Capital market watchdog Sebi is considering a new set of regulations for disclosure of only relevant risk factors by the companies in a format that is easy-to-understand for the investors.

Besides, the regulator is also planning changes in norms to bring in more clarity in the disclosure of 'related party transactions' and litigations faced by companies.

The 'related party transactions' are those that a company enters into with its senior management personnel, promoters and associate entities, among others.

Sebi is concerned over the current practice of companies overloading investors with bulky documents of risk factors that are general in nature, but disguising even business- specific risks as ones having generic consequences, a senior official said.

As per the current regulations, all the companies -- either already listed or seeking a listing on stock exchanges -- are required to make disclosures about 'risk factors' for them as also the sectors that they operate in.

However, the regulations provide only a broad guideline for such disclosures and the Sebi has come across numerous cases of abuse of the existing framework.

A Sebi panel has suggested that a comprehensive review was required for the disclosure requirements in the offer documents, which are filed by the companies before sale of their shares to public investors.

The Sebi recently made changes in its norms for the format and contents of the public offer applications and abridged prospectus filed by companies. The changes would be now made in the norms for full offer documents.

It would also study the practices in various global jurisdictions before taking the final call, the official added.

The panel observed that the companies now tend to disclose all conceivable risks and details of litigations, irrespective of their actual materiality, or sometimes extend a specific risk to include generic consequences, thus compromising on clarity and accuracy of risks involved.

Subsequently, it has been proposed Sebi issue certain guiding principles to supplement the relevant regulations on these areas.

Besides, the committee also opined that there was a need to examine the disclosures that should be made with respect to Related Party Transactions.