Top 250 companies by market capitalisation may soon have to mandatorily confirm or deny any rumour concerning them in the mainstream media. The Securities and Exchange Board of India has suggested this in a recent proposal reviewing the materiality requirement under its listing regulations.
Just six months back, SEBI had imposed a penalty on Reliance Industries Ltd. and two company officials for failing to issue a clarification after the news of the Jio-Facebook deal appeared in the Financial Times. To be clear, the Securities Appellate Tribunal has stayed the penalty.
Even as stakeholders await the outcome in this case, the regulator is seeking to codify the requirement of verification of media reports that may have a material effect on the listed company.
Besides this new requirement for the top 250 companies, the regulator has proposed several other changes for the entire universe of listed companies. The existing Listing Regulations, SEBI says, provide too much discretion to companies based on their materiality policy, which determines disclosure of material events by companies.
And so, the regulator has suggested that quantitative materiality threshold be laid down as against the existing framework where companies can lay down materiality criteria for themselves.
It has proposed that a combination of turnover, net worth and profit/loss after tax can be considered for determining the materiality threshold. Disclosure of an event will be required if its threshold value or likely impact exceeds lower of:
The scope of the materiality policy needs to be widened as well, according to SEBI.
For instance, under the existing regime, only frauds by promoters or key managerial persons of the listed entity are considered material. This should be extended to director and senior management as well, SEBI says. The parameters of materiality which were initially meant for certain persons would now be extended to senior management as well.
Similarly, arrest of senior management or a director other than independent director would also be considered material. Expansion of this scope is also proposed for disclosing reasons for resignation, closure of operation, and party to litigations.
Currently, companies are required to disclose material events within 24 hours. But in this age of digital communication, information moves fast, SEBI notes, suggesting that the timeline be reduced to 12 hours. It should be 30 minutes for information arising out of board meetings, the proposal says.
Currently, listed companies are required to disclose any revision in their ratings. New rating, too, should be disclosed, SEBI says. Additionally, disclosure of rating or revision in rating should be made even if the listed company didn’t request for it or withdrew the request.
The current rules require disclosure if a listed entity is acquiring control, or 5% or more of the shares or voting rights in a company. There could be situations, SEBI notes, where this is achieved without effecting any change in its shareholding in the company. This may occur due to equal investment in the company by all the shareholders of the company.
But such an acquisition must be treated as material event if the cost of acquisition exceeds the proposed materiality threshold, SEBI points out. So, a minimum threshold must be added to ‘acquisitions’ of existing or a new entity for disclosure purposes.
Finally, guidelines will be laid down for companies to display orders or actions by regulatory, statutory, enforcement or judicial authority. The guidelines would be made keeping in mind the confidential nature of certain communications, SEBI says.
The regulator has asked stakeholders to submit their feedback by Nov. 27.