Author: By Harsha Sharma
In order to facilitate capital formation and ease of doing business, at the behest of SEBI, three industry associations, viz. ASSOCHAM, CII and FICCI, came together to form Industry Standards Forum (“ISF”) under the aegis of the Stock Exchanges to set industry standards. ISF took up the rumour verification requirement as one of the pilot projects for formulating standards for effective implementation of the said requirement, in consultation with SEBI.
SEBI vide Notification No. SEBI/LAD-NRO/GN/2024/177 dated 17th May, 2024 has brought major changes in Sub-Regulation (11) of Regulation 30 of Listing Regulations through Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2024 with respect to:
2. timeline of verification of market rumour;
3. mechanism to ensure unaffected price of securities;
4. Obligation of Promoter, Directors and Key Managerial Personnels and Senior management with respect to verification of market rumours and
The purpose and impact of such changes are discussed hereunder:
The First proviso to Regulation 30 (11) of LODR Regulations requires listed entities to verify and confirm, deny or clarify market rumours which are reported in the mainstream media (“rumour verification requirement”). Prior to amendment the said regulation stated that:
The listed entity may on its own initiative also, confirm or deny any reported event or information to stock exchange(s):
Provided that the top 100 listed entities and thereafter the top 250 listed entities, with effect from the date as may be specified by the Board, shall confirm, deny or clarify any reported event or information in the mainstream media which is not general in nature and which indicates that rumours of an impending specific material event or information in terms of the provisions of this regulation are circulating amongst the investing public, as soon as reasonably possible and not later than twenty four hours from the reporting of the event or information:
Provided further that if the listed entity confirms the reported event or information, it shall also provide the current stage of such event or information.
Explanation – The top 100 and 250 listed entities shall be determined on the basis of market capitalization, as at the end of the immediately preceding financial year.
Following considerations have been made by SEBI for bringing the amendment in said regulation:
1. Basis of requirement of verification of market rumour:
Earlier the requirement of verification of market rumor by the listed entity was with respect to rumors pertaining to “material events” as specified in Para A and Para B of Part A of Schedule III of Listing Regulations. However, the SEBI has now clarified that the “materiality” for the purpose of rumour verification requirement should be considered in terms of “material price movement” instead of “material events” as specified in Para A and Para B of Part A of Schedule III of Listing Regulations since the aim for introducing the provision of verification of rumour is to ensure prompt verification of rumours that result in sudden movement of price of securities of listed entities and the reason for sudden movement of price of securities may or may not be included in the “material events” as specified in Para A and Para B of Part A of Schedule III of Listing Regulations. Hence, defining ‘materiality’ in terms of price movement instead of material event in terms of regulation 30 of LODR Regulations may be more relevant for the rumour verification requirement.
2. Timeline of verification of market rumour:
Prior to amendment the timeline for verification of market rumour was “within 24 hours of reporting in mainstream media” but since the requirement to verify market rumour arise from material price movement, SEBI has now clarified that the timeline for verifying market rumour shall be within 24 hours of material price movement instead of within 24 hours of reporting in the mainstream media.
3. Mechanism to ensure unaffected price of securities:
Under various regulations of SEBI, pricing of transactions relating to the securities of a listed entity are required to be based upon the market price of securities being traded on the stock exchanges like Chapter V or Chapter VI of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 or pricing norms provided under Regulation 8 or Regulation 9 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or pricing norms provided under Regulation 19 or Regulation 22B of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018 or any other pricing norms specified by the Board or the stock exchanges.
In this context, for determining the pricing of transactions relating to the securities of a listed entity, SEBI has clarified that unaffected price should be considered when the listed entity confirms the market rumour due to material price movement. Therefore, SEBI has stated that the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the reported event or information may be excluded for calculation of the price for that transaction as per the framework as may be specified by the Board.”
4. Obligation of Promoter, Directors and Key Managerial Personnels and Senior management with respect to verification of market rumours:
The obligation to disclose material events or information and market rumours is cast upon the listed entity. However, there may be instances where the rumour may pertain to promoters / directors / KMP / senior management and the listed entity may need to seek information from such persons in order to provide adequate, accurate and timely disclosure to the investors and to ensure compliance with Regulation 30(11) of LODR Regulations.
Therefore, the SEBI has cast an obligation upon the promoters, directors, KMP and senior management to provide adequate, accurate and timely response to queries raised or explanation sought by the listed entity in order to ensure compliance with Regulation 30(11) of LODR Regulations.
Considering the abovementioned implications Sub regulation (11) of Regulation 30 of SEBI listing Regulations has been amended as follows:
(11) The listed entity may on its initiative also, confirm or deny any reported event or information to stock exchange(s):
Provided that the top 100 listed entities and thereafter the top 250 listed entities, with effect from the date 213 specified by the Board, shall confirm, deny or clarify, upon the material price movement as may be specified by the stock exchanges, any reported event or information in the mainstream media which is not general in nature and which indicates that rumour of an impending specific event or information is circulating amongst the investing public, as soon as reasonably possible but in any case not later than twenty four hours from the trigger of material price movement:
Provided further that if the listed entity confirms the reported event or information, it shall also provide the current stage of such event or information:
Provided further that when the listed entity confirms within twenty four hours from the trigger of material price movement, any reported event or information on which pricing norms provided under Chapter V or Chapter VI of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 or pricing norms provided under Regulation 8 or Regulation 9 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or pricing norms provided under Regulation 19 or Regulation 22B of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018 or any other pricing norms specified by the Board or the stock exchanges are applicable, then the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the reported event or information may be excluded for calculation of the price for that transaction as per the framework as may be specified by the Board.
(11A) The promoter, director, key managerial personnel or senior management of a listed entity shall provide adequate, accurate and timely response to queries raised or explanation sought by the listed entity in order to ensure compliance with the requirements under sub-regulation 11 of this regulation and the listed entity shall disseminate the response received from such individual(s) promptly to the stock exchanges.
Note: The requirement to verify market rumours under Regulation 30(11) of LODR Regulations shall be applicable to top 100 listed entities with effect from June 01, 2024 and to top 250 listed entities (i.e., next top 150) with effect from December 01, 2024.
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