[Opinion] Critical Analysis of the Recent Amendments to SEBI (Listing Obligations and Disclosure) Requirements, 2015

Nachiket Sudhir Sohani – [2024] 166 taxmann.com 422 (Article)

Introduction

Capital Markets regulator, SEBI vide Notification No. SEBI/LAD-NRO/GN/2024/177 introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. SEBI notified the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2024. The key amendments include

1. New Market Cap Formula: Introduction of a new formula for calculating market capitalization, which adopts a 6-month average calculation.
2. Rumour Verification and Price Movement: The amendments link rumour verification to material price movement. Key executives are mandated to provide prompt and accurate responses for rumour verification.
3. Vacancies for Key Executives: Companies now have extra time to fill key executive vacancies that require regulatory approval.

Further, SEBI has waived the requirement for issuers to intimate stock exchanges two days before board meetings to determine the issue price in qualified institutions placements (QIPs). The amendments also provide a framework for handling material price movements due to market rumours in the pricing formulae for equity shares offered in preferential issues and QIPs by listed companies. These changes are aimed to ease fundraising and enhance transparency in the Indian securities market.

Addressing market rumours effectively is crucial for maintaining investor confidence and preventing undue price volatility. Here are some strategies that companies can consider:

1. Transparency and Communication

• Rumour Verification: Companies should promptly verify or refute rumours through official channels. Clear communication with investors, stakeholders, and the media helps dispel misinformation.
• Press Releases: Issuing official press releases or statements can clarify the company’s position and address false claims.
• Investor Calls: Hosting investor calls or webinars to address rumours directly allows companies to provide accurate information and answer questions.

2. Engage with Regulators

• SEBI Compliance: Companies should comply with SEBI regulations regarding rumour verification and disclosure. Timely reporting of material information is essential.
• SEBI’s Informant Mechanism: Companies can use SEBI’s informant mechanism to report market manipulation or insider trading based on rumours.

3. Internal Controls and Monitoring

• Surveillance Systems: Implement surveillance systems to monitor unusual trading patterns or sudden price movements. These systems can help detect potential rumours.
• Internal Communication: Ensure that employees are aware of the importance of not spreading rumours internally. Educate them about the impact of such actions.

4. Engage with Investors and Analysts

• Investor Relations: Regularly engage with investors, analysts, and financial media. Transparent communication builds trust and reduces the impact of rumours.
• Analyst Calls: Conduct analyst calls to discuss financial results, business updates, and address any concerns.

5. Legal and PR Support

• Legal Counsel: Seek legal advice on handling rumours. Legal experts can guide companies on disclosure requirements and potential legal actions.
• Public Relations: Work closely with PR teams to manage external communication during rumour situations.

Market rumours can significantly impact stock prices and investor behavior. Here are some common types of market rumours:

1. Earnings Speculation: Traders often buy stocks ahead of anticipated positive earnings releases or beneficial events like stock splits. For instance, if rumours suggest that a tech company’s earnings will surpass expectations, stock prices may rise due to speculation1.
2. Geopolitical Developments: Rumours related to geopolitical events can cause significant price movements. Investors may act on unconfirmed information, leading to stock price fluctuations.
3. Regulatory Decisions: Speculation about regulatory changes or decisions can influence stock prices. Traders may buy or sell based on rumours about upcoming regulations or policy shifts.
4. Product Launches: Unconfirmed rumours about a company’s innovative product launch can drive stock prices upward. Investors may buy shares in anticipation, only to sell them after the official announcement, capitalizing on post-announcement price drops1.

Remember that the effectiveness of trading based on rumours depends on market sentiment, timing, and the ability to interpret how other traders will react to actual news compared to what has already been speculated

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