Proposal to Further Boost Secondary Market Disclosures

One of our pet
peeves has been the considerable disparity in the primary market disclosure
norms where SEBI requires extensive disclosures when a company undertakes a
public offering and in the secondary market disclosures norms where companies
have to make continuous disclosures post-listing. The secondary market
disclosure norms are considerably weaker than those for the primary markets.
having been cognisant of this disparity, SEBI has been progressively taking
steps to uplift disclosure requirements in the secondary markets. Disclosures
in the secondary markets are of two kinds. One is continuous disclosures such
as quarterly reporting and annual reporting, and the other is episodic
disclosures whereby the company is required to release information to the
markets immediately upon the occurrence of any material event that may have an
impact on its stock price. Earlier this year, SEBI issued
a proposal
to increase continuous disclosures by requiring companies to
issued an annual information memorandum on a consolidated basis. This takes
into account integrated disclosure methods of the kind adopted in other
jurisdictions such as the US.
Now, SEBI has
undertaken measures to strengthen the episodic disclosure requirement. In a “Discussion
Paper on review of clause 36 and related clauses of the Equity Listing
“, it vastly expands the scope of episodic disclosures. The
discussion paper sets out the underlying philosophy behind this action – to
increase market efficiency by enhancing the timeliness and adequacy of the
disclosures. In this existing avatar,
clause 36 sets out a few circumstances when a listed company must make
disclosure to the stock exchanges. They are not only limited to the most
significant events, but they also leave a lot of flexibility to the companies
to determine whether the events are material enough to merit disclosure. SEBI
now proposes to have an elaborate list of events and circumstances when disclosure
becomes mandatory. The idea appears to be to limit the discretion in the hands
of companies and to (nearly) exhaustively list out situations for disclosures.
This would bring about greater certainty and predictability both for companies
and investors. Readers’ attention is drawn to the extensive listing of such
events that SEBI has attempted in the discussion paper.
While there could
be issues emanating from the technical details of the discussion paper (such as
an attempted definition of materiality), on the whole this move is welcome and
would aid in enhancing market efficiency as well as minimising the disparity
between primary and secondary market disclosures.

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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