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On August 19, the Securities and Exchange Board of India (Sebi) had put up a discussion paper for public comment. It was on the proposed review of Clause 36 of the listing agreement and related clauses.
The clause lays down provisions for companies to disclose ‘price-sensitive and material’ information to their shareholders through stock exchanges. These disclosures were mandated on listed entities to enable shareholders and the public to be apprised of the position of a company and “to avoid the establishment of a false market in its securities”. Yet, the clause, while giving the broad contours of disclosure, is short on specifics. The discussion paper said Sebi had found several disparities in the manner different companies made their disclosures. “…material information disseminated by listed entities through various modes is, at times, not notified to the stock exchanges. One reason for such disparity appears to be lack of sufficient clarity on materiality and price-sensitive information.”
Street Food had pointed to one such recent instance in its previous instalment, titled ‘Disclosure delayed, disclosure denied’. Another example is the coal blocks allocation case. The exchange filings by different companies hit by the apex court order tell their own story. Some companies have filed two-line statements to the exchanges but their chiefs spent hours in TV studios explaining their case. It seems the corporate honchos do not realise that they have a higher level of obligation to the shareholders, officially co-owners of the business, than to the subscribers of a channel or a newspaper.
After studying international practices and taking expert views, the discussion paper had proposed to ‘restructure’ the disclosure regime completely and published a three- part document which laid down a vision for a new disclosure regime to “reflect the dynamism of the changing maket scenario”.
The proposed new provisions came in three annexures. Annexure-A had the proposed new Clause 36; Annexure-B had guidelines on materiality and price-sensitivity; Annexure-C contains the indicative list of information that needs to be disclosed. The draft paper was open for public comments till September 12.
Even as the market was getting ready for the announcement from Sebi, the stock exchanges seem to have stolen its thunder. In a weekend move, both the BSE and the National Stock Exchange have put out a 'guidance note' on disclosures. Several provisions discussed in Sebi’s draft paper have also found their way in to this new document. The Street is a bit confused on what basis have the bourses suddenly introduced this note. When the regulator has put out such a detailed draft and taken feedback, why have the exchanges jumped the gun? Is this independent of the Sebi's overhaul plan? Though exchanges are considered frontline regulators, these don’t normally do things, particularly of such magnitude, without consultations with the regulator.
Does this mean Sebi is going slow on its plan to tighten disclosure norms under the listing agreement? A ‘guidance note’ is several notches below a listing agreement clause. And, stock exchanges have their limitations in enforcing when compared to the powers vested in Sebi.
Has the regulator received adverse comments from the different stakeholders on the implementation of the tougher regime, proposed earlier? Is it climbing down or has it chosen a more gradual route to enforcing a new disclosure regime? A disclosure from the regulator on this could be useful.
