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The Securities and Exchange Board of India (Sebi) is planning to come out with a set of rules shortly to replace the stock exchange listing agreement, a rule book followed by listed companies. The proposed norms will arm the capital markets regulator to enforce the listing agreement better and expand its scope following the recent changes to the Companies Act.
Currently, a listing agreement is a contract between a stock exchange and a listed company. It comprises a little more than 50 clauses — dealing with corporate governance and information-based disclosures such as filing of results, shareholding data, etc — which listed companies have to follow.
Although the listing agreement framework is prescribed by the market regulator itself, it is often perceived to be a private contract between a stock exchange and a listed company. Sebi is working on this new regulation which may be called the Sebi Listing Regulation, said two people with knowledge of the development.
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A former top Sebi official said replacing the listing agreement with a new regulation would improve compliance and also iron out a lot of operational issues. “At present, it is like the Sebi prescribing rules but looking only from a distance. If it comes out with a regulation, the Sebi can directly take action against violators than have to wait for an exchange to act first,” says M S Sahoo, secretary at ICSI and a former whole-time Sebi member.
Shriram Subramanian, founder & Managing Director D, InGovern Research Services, says the move could improve information-based surveillance. “There are several instances where even notices for shareholder meetings aren't disclosed in time and nothing much is done about such non-compliance. A system to ensure that disclosures are timely and information distribution is symmetric to all investors is still lacking in India. Information-based surveillance can be greatly enhanced,” he says.
Non-compliance with the listing agreement leads to disciplinary action against a company, including suspension of trading or delisting. In most cases, such action is first taken by a stock exchange, where the company is listed. The regulator normally steps in later, often only in serious cases. As the listing agreement is viewed just as a contract, the level of enforcement is not the same as it should be when it comes to following a regulation. Making frequent changes to the listing agreement is a lot more challenging.
“Instead of frequently makingchanges to the listing agreement and getting it signed by every listed company, it would be easier to make amendments to the regulation,” says Sahoo.
At times, Sebi’s jurisdiction for making changes to the listing agreement without a company’s consent is also challenged. For instance, in a recent case before the Bombay High Court between a listed company and Sebi, it was even argued whether Sebi, being a third party, could make changes to the listing agreement, a contract between two entities.
