SEBI (LODR) (Amendment) Regulations – New Market Cap Formula | Rumour Verification

The Securities and Exchange Board of India (SEBI) has introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, through the SEBI (LODR) (Amendment) Regulations, 2024, notified on 17th May 2024. These amendments aim to improve the accuracy of market capitalisation calculations, enhance the verification process for market rumours, ensure timely responses from key executives, provide extended timelines for filling key vacancies, and streamline compliance procedures. By doing so, SEBI seeks to foster market integrity, investor confidence, and robust corporate governance.

Table of Contents

Introduction

1. SEBI introduces ‘New Market Cap Formula’; Adopts 6-Month Average Calculation
2. SEBI Links Rumour Verification to Material Price Movements (MPM)
3. SEBI Mandates Prompt and Accurate Responses from Key Executives for Rumour Verification
4. SEBI Grants Extra Time to Fill Key Executive Vacancies Requiring Regulatory Approval
5. SEBI Mandates Uniform’ Two-Day Notice’ for Stock Exchange Intimations
6. SEBI Expands Interval Between Two Risk Management Committee Meetings to 210 Days
7. Compliance Extension for High-Value Debt-Listed Entities by One More Year
8. Conclusion

Introduction

The SEBI has introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. SEBI, vide notification dated 17th May 2024, has notified the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2024¹. The key amendments include

• The introduction of the ‘New market Cap Formula’, adopting a 6-month average calculation,
• Linking rumour verification to material price movement,
• Mandating prompt and accurate responses from key executives for rumour verification, and
• Granting an extra time to fill key executive vacancies requiring regulatory approval.

The key amendments are discussed in detail below:

1. SEBI introduces ‘New Market Cap Formula’; Adopts 6-Month Average Calculation

Regulation 3(2) states that the listing regulations shall apply to listed entities based on market capitalisation criteria and continue to apply to such entities even if they fall below the specified thresholds.

SEBI has prescribed a revised methodology for calculating market capitalisation (effective 31st December 2024). Earlier, the ranking was based on the company’s market cap as of 31st March or the closing of the fiscal year.

Under the new norms, every recognised stock exchange must prepare a list of entities that have listed their specified securities at the end of the calendar year, i.e., 31st December. These entities will be ranked based on the average market capitalisation calculated from 1st July to 31st December.

The new method aims to provide a more accurate representation of a company’s market capitalisation and ranking by considering a longer timeframe rather than relying on a single day’s market cap, which can be volatile.

1.1 Applicability of Amended Provisions to Listed Entities

The relevant provisions shall become applicable to a listed entity that is required to comply with such requirements for the first time (or, if applicable, required to comply after any interim period) after 3 months from 31st December (i.e. 1st April) or from the beginning of the immediate next financial year, whichever is later. The amended provisions are designed to ensure a clear timeline for compliance.

1.2 Continuation and Cessation of Applicability Based on Market Capitalization

A new sub-regulation (2A) has been inserted, specifying the continuity of regulations’ applicability. It states that the provisions of these regulations that become applicable to a listed entity based on market capitalisation criteria must continue to apply to such an entity unless its ranking changes in the list prepared by a recognised stock exchange or such a change results in the listed entity remaining outside the specified threshold for 3 consecutive years.

Further, a new sub-regulation (2B) has been inserted. It states that for the listed entities that remain outside the applicable threshold for 3 consecutive years, the provisions based on market capitalisation criteria shall cease to apply at the end of the financial year following 31st December of the third consecutive year.

For the listed entities that follow January to December as their financial year, the provisions shall cease to apply at the end of 3 months from 31st December of the third consecutive year (i.e., on 31st March).

2. SEBI Links Rumour Verification to Material Price Movements (MPM)

Regulation 30(11) of the Listing Regulations deals with rumour verification. Extant norms require the top 100²/top 250³ companies to respond mandatorily to market rumours. The entities shall verify the market rumours within 24 hours from the reporting in mainstream media. Now, SEBI has linked the rumour verification by listed companies to “Material Price Movement (MPM)”.

As per the amended norms, the company shall do the confirmation or denial or provide clarification within 24 hours from the trigger of the MPM.

Additionally, SEBI has added a new proviso to Regulation 30(11), requiring the exclusion of the material price movement period when determining the price of securities for certain corporate actions if the company confirms an event or information causing the price movement. In this regard, SEBI vide Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2024/51, Dated 21.05.2024, has issued the framework for top entities to consider unaffected prices in case of market rumours.

Further, the SEBI has issued a Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2024/52, whereby the Industry Standards Forum comprises representatives from three industry associations, viz. ASSOCHAM, CII and FICCI have formulated industry standards in consultation with SEBI. The purpose is to effectively implement the requirement to verify market rumours under Regulation 30(11) of SEBI (LODR) Regulations, 2015. The industry associations that are part of ISF (ASSOCHAM, FICCI, and CII) and the stock exchanges shall publish the industry standards note on their websites.

3. SEBI Mandates Prompt and Accurate Responses from Key Executives for Rumour Verification

A new Regulation 30(11A) has been inserted, requiring promoters, directors, key managerial personnel, or senior management of a listed company to promptly respond to any questions or explanations the listed entity needs to ensure compliance with Regulation 30(11). The company must then immediately share these responses with the stock exchanges.

4. SEBI Grants Extra Time to Fill Key Executive Vacancies Requiring Regulatory Approval

As per Regulation 26A, vacancies in the office of Chief Executive Officer, Chief Financial Officer, Managing Director, Whole Time Director or Manager shall be filled by the listed entity maximum within three months from the date of such vacancy.

The amended norms provide that if the listed entity is required to obtain approval from regulatory, government, or statutory authorities to fill such vacancies, then the vacancies shall be filled maximum within six months from the date of such vacancy. An additional three-month period is granted to fill the vacancy in such cases.

5. SEBI Mandates Uniform’ Two-Day Notice’ for Stock Exchange Intimations

Under the extant norms, the listed entity was required to intimate the stock exchange for a board meeting as follows:

• Board meeting for Buyback, Dividend, Raising of Funds, Voluntary Delisting, Bonus – At least two working days in advance
• Board meeting for Financial Results- At least five working days in advance
• Board meeting foralteration in nature of securities, alteration in the date on which, the interest on debentures or bonds, or the redemption amount of redeemable shares or debentures or bonds- At least eleven working days in advance

Now, SEBI has specified two working days before intimation for all events prescribed under Regulation 29. Prior intimation given to the stock exchange under Regulation 29 will now have to mention the date of the board meeting when the proposals will be discussed.

Further, SEBI has exempted prior intimation to stock exchanges regarding the determination of issue price in case of qualified institutional placement if the issue is made applicable to SEBI.

Listed companies that have yet to announce financial results can now hold board meetings two working days before considering annual financial results and corporate action, if any.

SEBI has further clarified that fundraising through any money market instrument, viz., fundraising by way of issue of commercial paper, etc., would also now require prior intimation.

6. SEBI Expands Interval Between Two Risk Management Committee Meetings to 210 Days

As per Regulation 21(5), the top 1,000 listed entities and high-value debt-listed entities shall constitute a Risk Management Committee. The extant norms provide that the gap between two risk management committees shall not exceed 180 days.

The amended norms extend the maximum gap between two risk committee meetings to 210 days. This extension allows for greater flexibility in scheduling meetings, providing entities additional time to prepare comprehensive risk management strategies and reports.

7. Compliance Extension for High-Value Debt-Listed Entities by One More Year

Chapter IV of the LODR lists the obligations for entities with listed specified securities and non-convertible debt securities. Initially, SEBI extended the applicability of Chapter IV to high-value debt-listed entities on a “comply or explain” basis until 31st March 2024 through the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023.

This period has now been extended by another year, until 31st March 2025, after which compliance will be mandatory. A high-value debt-listed entity is an entity that has listed its non-convertible debt securities. It has an outstanding value of listed non-convertible debt securities of Rs 500 crore and above.

8. Conclusion

The recent SEBI amendments significantly impact listed entities by introducing a more accurate market capitalisation calculation, enhancing the transparency and timelines of rumour verification, and ensuring prompt responses from key executives. The amendments also provide extended timelines for filing key executive vacancies and uniform notice periods for stock exchange intimations, thus promoting regulatory compliance and operational efficiency.

High-value debt-listed entities receive an additional year for compliance, while the extended interval between risk management committee meetings allows for better strategic planning. These changes improve market integrity, investor confidence, and corporate governance.

1. Notification No. SEBI/LAD-NRO/GN/2024/177; Dated: 17.05.2024
2. W.e.f 01^st June, 2024
3. W.e.f 1^st Dec, 2024