SEBI vide its Consultation Paper dated November 12, 2022 made review on disclosure requirements for material events or information as required under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Regulation 30 of LODR Regulations, requires listed entities to disclose material events or information to the stock exchanges.
Background and need for review :
In the recent years, SEBI has been receiving many complaints / references regarding inadequate / inaccurate / misleading / delayed disclosures made by the listed entities. Listed entities from their end have also expressed that uniformity in the guidance to the listed entities is required for determining materiality of events or information. While the regulatory actions against non-disclosure of material events or information act as a deterrent, it cannot undermine the importance of ensuring timely disclosure of material events by all listed entities at all times.
It is also observed that while timelines have been specified under various provisions of the LODR for dissemination of information, there have been frequent non-compliances of such timelines by the listed entities thereby inviting fines/penalties. Needless to emphasize here is that timely dissemination of information would help in reducing information asymmetry.
Highlights of Proposals made by SEBI :
Guidelines for materiality for events specified under Para B:
Materiality Threshold : It is proposed that the listed entities shall disclose an event or information specified under Para B whose threshold value or the expected impact in terms of value exceeds the lower of the following:
- two percent of turnover, as per the last audited standalone financial statements of the listed entity;
- two percent of net worth, as per the last audited standalone financial statements of the listed entity;
- five percent of three-year average of absolute value of profit/loss after tax, as per the last three audited standalone financial statements of the listed entity.
Materiality Policy : It is proposed to specify the following under clause (ii) of regulation 30(4) of LODR Regulations:
- Materiality Policy of the listed entity shall not dilute any requirements specified under this regulation.
- Materiality Policy of the listed entity shall be framed in a manner so as to assist employees in identifying potential material event or information which shall be escalated and reported to the relevant Key Managerial Personnel for determining materiality of the event or information and for making disclosure to stock exchange(s).
Timeline for disclosure : It is proposed that for the material events or information which emanate from the listed entity, the timeline for disclosure by the entity shall be reduced from twenty-four hours to twelve hours. The proposed timeline for disclosure of events specified under Part A of Schedule III of LODR is placed as Annex II.
Additionally, in case of those events or information which emanate from a decision taken in a meeting of board of directors, the disclosure shall be made within 30 minutes from the closure of such meeting.
In case of those events for which specific timelines have already been provided under Part A of Schedule III of LODR, disclosure of those events would be required to be done as per the said specified timelines.
Verification of market rumours : It is proposed to add a proviso to regulation 30(11) as below:
Additionally, in case of those events or information which emanate from a decision taken in a meeting of board of directors, the disclosure shall be made within 30 minutes from the closure of such meeting.
“Provided that top 250 listed entities shall necessarily confirm or deny any event or information reported in the mainstream media, whether in print or digital mode, which may have material effect on the listed entity under this regulation.
Explanation – The top 250 listed entities shall be determined on the basis of market capitalization, as at the end of the immediate previous financial year.”
Disclosure of communication from any regulatory, statutory, enforcement or judicial authority : It is noted that some of these communications may contain confidential information or may have regulatory restriction on disclosure and hence, it may pose a challenge for some companies to make upfront disclosure of such communications. However, it is proposed that a provision may be added in Regulation 30 of LODR for enabling SEBI to come out with a guidance for disclosure of such communications.
The events specified under Para A and Para B were reviewed based on the suggestions / feedback received from the stock exchanges and the industry. In order to address the gaps identified, remove ambiguity and to enhance transparency and availability of information to the investors, it is proposed to include certain additional events and also to modify certain events specified under Para A and Para B.
Events proposed to be added in Para A :
“Announcement or communication to any form of mass communication media by directors or promoters or key managerial personnel or senior management of a listed entity, in relation to the listed entity, which is not already made available in the public domain by the listed entity.”
“Action(s) taken or initiated by any regulatory, statutory, enforcement or judicial authority against the listed entity or its directors or key managerial personnel or senior management or promoter or subsidiary, in relation to the listed entity, towards the following: suspension; imposition of fine/penalty; settlement of proceedings; debarment; disqualification; closure of operations; sanctions imposed; warning or caution; search or seizure; inspection; investigation into affairs of the entity; and re-opening of accounts under section 130 of the Companies Act, 2013.”
It is also proposed to specify disclosure of the following details along with the disclosure of the above mentioned event :
- Name of the authority.
- Nature and details of the action(s) taken or initiated.
- Date of receipt of direction or order, including any ad-interim or interim orders, or any other communication from the authority.
- Details of the violation(s) committed.
- Impact on financial, operational or other activities of the listed entity.
“Voluntary revision of financial statements or the report of the board of directors of the listed entity under section 131 of the Companies Act, 2013.”
The following event is proposed to be added as sub-para 7C in Para A: “In case of resignation of a key managerial personnel or a senior management or a director other than independent director, the letter of resignation along with detailed reasons for the resignation as given by the key managerial personnel or the senior management or the director shall be disclosed to the stock exchanges by the listed entities within seven days from the date of resignation.”
The following event is proposed to be added as sub-para 7D in Para A: “The Managing Director or the Chief Executive Officer of the listed entity is in disposed or unavailable to fulfil requirements of his/her role in a regular and consistent manner for more than one month.”
Events proposed to be modified in Para A : As per Circular
Events proposed be added in Para B : The following event is proposed to be added in Para B: “Delay or default in payment of fines, penalties, dues, etc. to any regulatory, statutory, enforcement or judicial authority.”
Events proposed be modified in Para B : As per Circular
Disclosure of cyber security incidents or breaches and loss of data / documents :
It is proposed that the listed entities may be required to make disclosures in relation to “cyber security incident” or “cyber security breaches” or loss of data / documents of the listed entity in the quarterly CG Report.
Comments may be sent by email to consultationcfd@sebi.gov.in no later than November 27, 2022. While sending the email, kindly mention the subject as “Comments on consultation paper on review of disclosure requirements for material events or information under LODR Regulations.”
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