The market regulator, the Securities and Exchange Board of India, or Sebi, is considering a change in disclosure norms to ensure that price-sensitive information is released to the stock exchanges before being disseminated to other bodies such as industry associations. On the face of it, the immediate impact of this would be merely cosmetic. However, it may have positive or negative long-term implications. The underlying logic seems impeccable. Any listed entity has an obligation to release price-sensitive information as soon as possible, to ensure that the investing public at large is enabled to make informed decisions and is not handicapped vis-à-vis insiders. Indeed, disclosure norms such as Clause 36 of the Listing Agreement are based on this premise. In terms of legal compliance, companies are supposed to release quarterly financial updates under normal circumstances. In practice, listed companies also tend to belong to industry associations and they tend to follow the norms of their given industry in terms of information exchange.
Some industry associations tend to be quite active in tracking industry trends and release both sector-specific and company-specific data as well as projections on a regular basis. For example, cement manufacturers release monthly dispatch data and auto manufacturers release monthly sales data. The IT industry releases future guidance but not monthly data. Other sectors are less forthcoming with information. By and large, industry associations, which are after all essentially lobbyists and publicists for their given sector, tend to post this information on their websites. But they may do it with some degree of delay, creating opportunities for insider activity. Many investors are well aware of this and track industry association websites. But it is true that while this information is released into the public domain by many companies, it isn’t a statutory process. Sebi would prefer this information to come directly to the exchanges. This could, in theory, be a painless process. It would also ensure wider and more granular dissemination.
However, making it mandatory to release such information through the exchange, if it is to be released at all, may actually have an unintended and negative effect. Monthly data are often subject to revisions and corrections. A release to the exchange is guaranteed to have more effect on prices than a release via industry association. Revisions of such information could conceivably lead to scrutiny that places the company in an awkward position. Since it isn’t mandatory to release monthly data at all (and many companies don’t), some companies may just drop the practice — which, ironically, can lead to less efficiency. All this is hypothetical, of course. Sebi’s desire to level the playing field in this respect is understandable. If it works out as intended, it would help to make the market just a tad more efficient by reducing information asymmetry.