SEBI proposes amendments in disclosure requirements to bring uniformity in the Materiality Policy

SEBI Consultation Paper, Dated 12-11-2022

SEBI has floated a consultation paper on the review of disclosure requirements for material events/ information under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The objective is to streamline disclosure requirements for material events /information required under regulation 30.

Some of the key proposals in the Consultation Paper are (a) Quantitative criteria of minimum threshold limit for determination of materiality of an event/information (b) Amendment of the Materiality Policy of the listed entity, (c) Reduction of the timelines for disclosure of event/information from 24 hours to 12 hours etc. The key proposals in the Consultation Paper are discussed hereunder:

1. Quantitative criteria of minimum threshold for determination of materiality of an event/information [Regulation 30(4)]

The determination of the materiality of an event/information depends on the Materiality Policy of the listed entity. Regulation 30(4) of the SEBI (LODR) Regulations, 2015 specifies the criteria for the determination of the materiality of events/information.

Now, SEBI has proposed to include quantitative criteria of minimum threshold for determination of the materiality of an event/information. This will bring uniformity in the Materiality Policy across the listed entities. The criteria is based on the combination of turnover, net worth and profit/loss after tax.

Thus, it is proposed that listed entities shall disclose such event/information whose threshold value or expected impact in terms of value, exceeds the least of the following:

(a) 2% of turnover as per the last audited standalone financial statements of the listed entity

(b) 2% of net worth as per the last audited standalone financial statements of the listed entity

(c) 5% of the three-year average of the absolute value of profit/loss after tax, as per the last three audited standalone financial statements of the listed entity.

2. Amendment of the Materiality Policy of the listed entity [Regulation 30(5)]

Regulation 30(5) requires the Board of Directors of the listed entity to authorize one or more Key Managerial Personnel (KMP) for the purpose of determining the materiality of an event or information and for the purpose of making disclosures to the stock exchanges.

However, there may be situations where the authorised KMPs may not have immediate access to the material event/information. This may lead to non-disclosure of the event on time even if the said event or information is material.

Therefore, SEBI has proposed that the Materiality Policy of the listed entity shall be framed in a manner so as to assist its employees in identifying potential material event or information which shall be escalated and reported to the relevant KMP for determining the materiality of an event/information and for making disclosures to the stock exchanges. Further, the Materiality Policy of the listed entity shall not dilute any requirements specified under this regulation.

3. Reduction of the timeline for disclosure of material events or information from 24 hours to 12 hours [Regulation 30(6)]

As per Regulation 30(6), the listed entity is required to disclose the material events or information as specified in Part A of Schedule III within 24 hours from the occurrence of an event or information. However, it was observed that at times, the disclosure of an event/information was made at the last hour, by the time the information gets circulated publicly in the media.

Therefore, SEBI has proposed to reduce the timelines for the disclosure of material events/information to 12 hours. And, in case of those events or information which emanate from a decision taken in a meeting of the board of directors, the disclosure shall be made within 30 minutes from the closure of such meeting.

Further, 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 within 24 hours only. The proposed timelines for the disclosure of events has been provided in Annex-II of the Consultation Paper.

4. Mandatory verification of market rumours [Regulation 30(11)]

As per Regulation 30(11), the listed entity may on its own initiative, confirm or deny any reported event or information to stock exchange(s). The regulation provides a general provision for the verification of market rumours by the listed entity. Verification of reported events or information which may have a material effect on the listed entity is essential to avoid the establishment of false market sentiment or impact on the securities of the entity.

Therefore, the SEBI has mandated the verification of such event or information by the listed entities. A proviso has been added to the regulation which states that the 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 a material effect on the listed entity.

5. Modification in the definition of “acquisition” [Para A of Part A of Schedule III]

The term “acquisition” has been defined in Para A of Part A of Schedule III of the Regulations. At present, a listed entity acquiring control, or 5% or more of the shares or voting rights in a company is required to be disclosed under sub-para 1 of Para A. However, there may be a situation where a listed entity acquires shares in a company without effecting any change in its shareholding in the company.

Now, the SEBI has proposed to include the minimum threshold limit in the definition. Further, it is clarified that acquisition can be in an existing company or in a newly incorporated company as well.

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