Sebi considers sweeping changes to disclosure, listing requirements

Committee led by former whole-time member submits report on streamlining regulations

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The Securities and Exchange Board of India (Sebi) will soon deliberate on close to 50 changes proposed by an expert group to simplify disclosure and listing obligations for listed companies, and those seeking to access the public markets.

A 21-member committee chaired by SK Mohanty, a former whole-time member of Sebi, has submitted its recommendation in an over 200-page report. It proposes changes to related party transaction (RPT) norms, promoter reclassification and lock-in requirements, director appointments, eligibility rules for initial public offers (IPOs), disclosure of pre-IPO transactions, rights issues, and relaxation in disclosure timelines.

The expert group has suggested a longer promoter-lock-in period if the funds raised via an IPO to repay loans are utilised for capital expenditure.

“Additional disclosures to be provided based on the audited standalone financial statements in cases where issue proceeds are used to fund working capital,” said a 215-page consultation paper released by Sebi.

It has also proposed to increase the timeline for disclosure of litigation or disputes from existing 24 hours to 72 hours. The regulator has also sought for more disclosure of pre-IPO transactions.

“Any pre-listing compensation or profit-sharing agreement that subsists after listing would require ratification of shareholders in the first general meeting held after listing,” the paper added.

In an overhaul of norms on RPTs, Sebi has suggested several exemptions in the definition, approvals, and half-yearly disclosures. For instance, remuneration and sitting fees paid to directors or senior management could be exempted from disclosures. Transactions between two public sector companies or between a PSE and a state or central government may be exempted from approval under RPTs.

The regulator may also allow companies with outstanding stock appreciation rights (SARs) to file for an IPO. However, it will only be applicable to those firms where such SARs have been granted to employees. SARs are a type of compensation given to employees that are linked to the performance of the company’s stock price. 

The market regulator also plans to streamline the exchange filings and advertisements issued by the listed companies or to-be listed companies in a bid to minimise such filings and paperwork. While Sebi has suggested removing routine filings on the loss of physical shares, it has proposed separating filings into financial and governance categories and separate timelines for each such category.

It has proposed doing away with the requirement of sending physical copies of abridged annual reports to shareholders whose email addresses are not available. Instead, a letter will be sent to such shareholders, indicating the link from which the annual report can be downloaded.

Likewise, it has been proposed to combine the pre-issue advertisement and price band advertisement as a single advertisement for the IPO-bound companies, besides allowing disclosure of certain information with a quick response (QR) code link.

Sebi will also encourage the top 2,000 companies to induct at least one woman independent director and constitute a risk-management committee. Currently, it is mandated for only the top 1,000 listed companies.

Most of the proposals are aimed at bridging the gaps and addressing overlaps in Sebi's Listing Obligation and Disclosure Requirements (LODR) and Issue of Capital and Disclosure Requirement (ICDR) regulations. The regulator has sought comments on the proposals by July 17.

Key proposals

> Changes in definition of related-party transactions, more exemptions

> More disclosure of pre-IPO transactions

> Shareholder confirmation for pre-listing profit-sharing agreements

> Longer promoter lock-in if IPO proceeds to repay loans used for capital expenditure

> Relaxation in certain disclosure timelines, director appointment timelines

> Wider eligibility rules for IPOs