Monitoring Secondary Market Disclosures

One of
the concerns regarding the corporate disclosure regime is that while the
primary market disclosure requirements (e.g. for a prospectus) are extensive
and stringent, the secondary market disclosures by companies that are already
listed on the stock exchanges are far from being elaborate. In order to bridge
this gap, SEBI has been taking steps to enhance the disclosure requirements in
the secondary markets.
Consistent
with this approach, SEBI yesterday issued a circular
to the stock exchanges requiring them to monitor corporate disclosures and also
detailing the type of actions that the exchanges may initiate in case of
non-compliance. The stock exchanges are now required to put in place an
appropriate framework to monitor the accuracy of the disclosures, such that
non-compliances are detected efficiently. Furthermore, the exchanges are
required to establish appropriate mechanisms for handling investor complaints
pertaining to inaccurate disclosures. These measures are initially applicable
to the top 500 listed companies by market capitalization (as on March 31,
2013).
While
the policy of enhancing secondary market disclosures is welcome, adequate steps
would have to be taken by the stock exchanges to ensure effective
implementation. The efficiency of the stock markets would depend upon the
quantity and quality of information available in the markets, and to that
extent the effort of SEBI and securities laws and regulations is to ensure the
adequacy and appropriateness of the information so as to enable investors to
make suitable investment decisions. From the investors’ perspective, the role
of the stock exchanges acquires tremendous importance, given that the
possibility of initiating private legal actions for non-disclosure or
misstatements is ineffective in the Indian context, although that is likely to
be altered in the new Companies Act, 2013 with the advent of the class action
mechanism.

This area of the law is poised for further (possibly drastic) change as
the overhaul of the SEBI regulations on insider trading is expected to be
announced soon, as this
news
report
suggests.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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