SEBI

1. Context

The Securities and Exchange Board of India (SEBI) on November 12 floated a consultation paper proposing measures to tackle market rumours.

It reviewed disclosure requirements for material events and information under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

2. Need for Review

The Central Premise of the proposal is to ensure timely disclosure of significant events that may have a bearing on the price of a scrip.
SEBI notes that while regulatory actions against non-disclosure of events do act as a deterrent for listed entities to withhold details of material events or information, timely disclosure is still very important.
SEBI also seeks to ensure unverified rumours do not shake investor confidence and affect decision-making.
Listed entities have sought that the regulator institute a certain uniformity in its guidance for disclosures to help them better determine what constitutes a material event or information.
In a related context, the market regulator pointed to provisions that require companies to put forth specific and adequate replies to all rumour verification queries raised by the exchanges.
This could be concerning certain information circulating on social media or any other platform.
It proposes entities should confirm or deny any such reported event or information.

3. Proposed Disclosures

The Proposed measures are directed towards preventing any false market sentiment or impact on the securities of a company.
Recognising the "growing influence" of print, television and digital news media, it argues that companies to keep and ensure that any rumours are verified or refuted.
Thus, it is proposed that the top 250 listed entities, based on market capitalisation at the end of the previous assessment year, would have to deny or refute such rumours.

It proposes companies disclose all information whose expected impact in terms of value exceeds 2 per cent of either its turnover or net worth as per the last audited financial statement or 5 per cent of the three-year average of the absolute value of profit/ loss after tax.

To avoid information asymmetry, SEBI has proposed that the listed entities need to also disseminate any communication with regards to the company made by its directors, promoters, key managerial personnel or senior management individually and not through the company.
It recognises that it is difficult for an investor to keep track of multiple newsworthy announcements from diverse avenues.
To this effect, it proposes that companies inform about any rating actions, even if it was not requested by the company or if a request was withdrawn.

Further, companies also need to disclose any actions initiated by a regulatory, statutory, enforcement or judicial authority against any of its directors, key managerial personnel, senior management, promoter or subsidiary about the entity.

These may include investigation, suspension, imposition of penalty or fine, settlement of proceedings, debarment, sanctions, warnings, search, seizure and default on the payment of fines, penalties and dues among others.

The mentioned measure would thus prevent information asymmetry as it would streamline access to verified information.

4. Material Importance

The material importance of key personnel, senior management and directors to investors.
They instil confidence in the functioning and affairs of the company.
To this effect, it proposes that entities inform the exchange about their resignations within seven days.
Along similar lines, companies must also disclose if the MD/CEO is not available to discharge their duties for greater than a month.

5. Are timelines being revised?

The regulator observed that there was a need for quicker disclosure of material events since information permeates very fast on social media and digital media.
It makes a note of several instances where the disclosures were made only after the news had already circulated in the media.
At times, the information was disclosed only after the exchange raised a query to the company.
Therefore, SEBI proposes that disclosures about events or information emanating from within the company be made within twelve hours instead of the existing mandate of twenty-four hours.
To cut-off remains unchanged for events emanating from external occurrences.
Moreover, all decisions taken in Board of Directors meetings are to be disclosed within thirty minutes from when it concludes.
Companies must also inform two days in advance if any investor or analyst meeting is scheduled.

6. SECURITIES AND EXCHANGE BOARD OF INDIA

6.1. Background

Before SEBI came into existence, the Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, of 1947.
In April 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
Initially SEBI was a non-statutory body without any statutory power.
It became autonomous and given statutory powers by SEBI Act 1992.

6.2. Structure of SEBI

SEBI Board consists of a Chairman and several other whole-time and part-time members.
SEBI also appoints various committees, whenever required to look into the pressing issues of that time.
Further, a Securities Appellate Tribunal (SAT) has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.
SAT consists of a Presiding Officer and two other
It has the same powers as vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.

6.3. Aims associated with SEBI

To protect the interests of investors in securities and to promote the development of, and regulate the securities market.
It is the regulator of the securities and commodity market in India owned by the Government of India.

6.4. Functions

SEBI is primarily set up to protect the interests of investors in the securities market.
It promotes the development of the securities market and regulates the business.
SEBI provides a platform for stockbrokers, sub-brokers, portfolio managers, investment advisers, share transfer agents, bankers, merchant bankers, trustees of trust deeds, registrars, underwriters, and other associated people to register and regulate work.
It regulates the operations of depositories, participants, custodians of securities, foreign portfolio investors, and credit rating agencies.
It prohibits insider trading, i.e. fraudulent and unfair trade practices related to the securities market.
It ensures that investors are educated on the intermediaries of securities markets.
It monitors substantial acquisitions of shares and take-over of companies.
SEBI takes care of research and development to ensure the securities market is efficient at all times.

6.5. Powers of SEBI

Quasi-Judicial: SEBI has the authority to deliver judgements related to fraud and other unethical practices in terms of the securities market. This helps to ensure fairness, transparency, and accountability in the securities market.
Quasi-Executive: SEBI is empowered to implement the regulations and judgements made and to take legal action against the violators. It is also authorized to inspect Books of accounts and other documents if it comes across any violation of the regulations.
Quasi-Legislative: SEBI reserves the right to frame rules and regulations to protect the interests of the investors. Some of its regulations consist of insider trading regulations, listing obligations, and disclosure requirements. These have been formulated to keep malpractices at bay. Despite the powers, the results of SEBI’s functions still have to go through the Securities Appellate Tribunal and the Supreme Court of India.

6.6. Other Powers and Functions of SEBI

SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
It functions to fulfil the requirements of three categories –

Issuers – By providing a marketplace in which the issuers can increase their finance.
Investors – By ensuring the safety and supply of precise and accurate information.
Intermediaries – By enabling a competitive professional market for intermediaries.

By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.
SEBI Chairman has the authority to order “search and seizure operations”. SEBI board can also seek information, such as telephone call data records, from any persons or entities concerning any securities transaction being investigated by it.
SEBI perform the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds.
It also works for promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

For Prelims

For Prelims: SEBI, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, market rumours,

Source: The Hindu

Share to Social

UPSC Article