The Securities and Exchange Board of India (Sebi) has announced an extension of the timeline for listed entities to verify and clarify market rumors, introducing changes to disclosure norms aimed at enhancing transparency and investor protection.
In a recent circular, Sebi stated, “It has been decided to extend the effective date of implementation of the proviso to regulation 30(11) of the LODR Regulations for top 100 listed entities by market capitalization, to February 1, 2024, and for top 250 listed entities by market capitalization, to August 1, 2024.”
Under Sebi’s Listing Obligations and Disclosure Requirements (LODR) Regulations, the top 100 listed entities by market capitalization were initially scheduled to comply with the new rules from October 1, 2023, while the top 250 listed entities were to follow from April 1, 2024. The regulation required these entities to mandatorily verify, confirm, deny, or clarify market rumors.
The new disclosure norms were introduced earlier this year as part of Sebi’s efforts to promote transparency and ensure timely disclosure of material events or information by listed entities.
Legal experts have noted instances where news related to ongoing deals was prematurely leaked, often during the initial stages of negotiations. Sebi regulations aim to compel firms to disclose developments prematurely, even before they are fully negotiated or finalized. The objective is to ensure that investors receive accurate and timely information.
The revised norms are designed to help investors make informed decisions. By requiring companies to issue quick clarifications regarding market rumors, Sebi aims to protect investors who can then make better-informed decisions about whether or not to invest in a particular company.
Sebi’s rules mandate that every listed firm maintains a list of thresholds, beyond which any news would be considered a material development. For example, any acquisition valued at over ₹100 crore or a plant shutdown if the facility contributes 10% or more to the company’s revenues would trigger disclosure requirements.
This regulatory change was based on a discussion paper that Sebi circulated last November, in which it proposed several changes to disclosure rules. Sebi argued that such proposals were essential to prevent the “establishment of a false market sentiment.” It noted that market rumors, whether in print media, on TV, or through digital media, were increasingly impacting stock movements.
While Sebi had rationalized several disclosure requirements for listed companies in 2019, allowing them greater discretion in determining what is important to disclose, it recently observed that many firms were not adhering to these norms. In the past few months, Sebi has issued several discussion papers proposing the tightening of various disclosure norms in response to these concerns.
The extension of the timeline for the implementation of market rumor verification requirements provides listed entities with additional time to prepare for these regulatory changes and ensure compliance with Sebi’s disclosure norms, ultimately enhancing transparency and investor confidence in the Indian securities market.
