Summary: On May 17, 2024, SEBI announced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, aimed at enhancing ease of doing business in India. These changes align with the Finance Minister’s goals to reduce compliance costs. Key updates include a new framework for handling market rumors, requiring listed companies to respond based on specific criteria, which poses challenges in balancing transparency and corporate confidentiality, especially regarding Non-Disclosure Agreements (NDAs). The revised market capitalization calculation introduces a six-month average to mitigate the effects of temporary market fluctuations and provides a more flexible compliance timeline. Additionally, mandatory Corporate Governance rules for High Value Debt Listed Entities (HVDLEs) will extend until March 31, 2025, addressing significant non-compliance issues in this sector. A ‘comply or explain’ approach, similar to the UK model, could enhance governance by allowing companies to adapt practices while maintaining transparency. Although these reforms aim to improve India’s business environment and market integrity, challenges remain, including the need for tailored governance frameworks and clear guidelines for rumor management. SEBI’s continued engagement with stakeholders will be crucial to ensure these amendments achieve their intended outcomes while maintaining investor confidence and market stability.
Through a notice dated 17 May 2024, the Securities and Exchange Board of India (SEBI) has made major changes to the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (SEBI LODR). These developments complement the Finance Minister’s will to lower compliance costs and advance simplicity of business in India. Based on SEBI’s Expert Committee recommendations and consultation papers from late 2023 and early 2024, the adjustments include many significant changes to current laws meant to simplify corporate operations while preserving market integrity.
System of Market Rumour Verification
Introduced by a proviso to Regulation 30(11) of SEBI LODR, the revised framework establishes a thorough methodology to handle market rumours. Under this structure, qualified listed businesses have to answer to market rumours according on particular criteria. These factors comprise material price fluctuations, the emergence of rumours in popular media, and the relevance of the rumours to particular, approaching events or information. This structure does, however, provide major difficulties, especially with relation to the balance between openness and corporate secrecy.
Non-disclosure agreements (NDAs) control many company transactions and can lead to disputes with the need to handle rumours. Although SEBI contends that the mere existence of rumours points to an NDA breach, this argument can oversimplify the complicated nature of corporate confidentiality and the pragmatic reality of business operations.
Models from outside present possible answers to these problems. Through Rule 701, Singapore’s Disclosure Policy offers exclusions for sensitive information that can compromise corporate objectives and permits the deferral of disclosure for unfinished business. Australian Continuous Disclosure Norms also examine reasonable expectations for disclosure, safeguard trade secrets and incomplete plans, and exempt immediate disclosure under particular circumstances. Similar carve-outs in SEBI LODR could assist to strike a better balance between commercial interests and market openness.
Reform of Market Capitalisation
The initial approach for computing market capitalisation had several important restrictions. These included an over-reliance on single-day computations that produced arbitrary benchmarks, short compliance deadlines that presented difficulties for recently qualified enterprises, and indefinite compliance obligations that burdened organisations unnecessarily.
In order to meet these difficulties, SEBI has proposed a redesigned structure beginning from December 31, 2024. This new method minimises the effect of transient market swings by using a six-month average (July 1 to December 31) for computations, therefore producing more consistent and representative rankings. Along with a more flexible compliance schedule that provides a three-month period from December 31 and alignment with the financial year, the framework also offers Aiming to minimise needless compliance load, a sunset clause has also been included, whereby criteria stop three successive years below the level.
Still, the new paradigm begs some serious issues. The consistency of ranking raises questions since regular changes in regulatory status could compromise management performance and raise apparent investment risk. Like U.S. businesses responded to the Sarbanes-Oxley Act, the danger of manipulation also exists, with businesses maybe trying to influence rankings to avoid compliance. Furthermore, with Expert Committee proposals currently pending SEBI approval, there remain issues around handling different rankings between exchanges.
Corporate Governance for Listed Entities With High Value Debt
By extending mandatory Corporate Governance (CG) rules to March 31, 2025, High Value Debt Listed Entities (HVDLEs) will have far more substantial implementation issues acknowledged. Comprising companies, trusts, REITs, and InvITs, each with their own regulatory requirements and governance systems, these organisations span a wide spectrum of organisational forms. Entities under government control have very special difficulties applying these standards. The substantial non-compliance rate—71% of HVDLEs failing to satisfy CG criteria between April and June 2022—reflects the intricacy of these difficulties.
A ‘comply or explain’ strategy akin to the UK Financial Reporting Council model could offer a more flexible and efficient governance structure to help to meet these difficulties. This method will let organisations change their governance strategies to fit their particular situation while keeping openness by means of quality explanations for any deviations. Further improving compliance and efficiency would be the creation of customised frameworks considering entity-specific needs while balancing regulatory goals with pragmatic limitations.
Finally
While preserving market integrity, the 2024 SEBI LODR changes show a major step towards bettering India’s business environment. Although the changes solve many of the current issues, several areas need more work including the development of sector-specific governance frameworks, clear procedures for managing several exchange rankings, and implementation guidance for rumour verifying needs.
The effectiveness of these revisions would mostly rely on SEBI’s ongoing interaction with stakeholders and capacity to change rules depending on pragmatic experience. The reforms show a will to strike a balance between corporate efficiency and regulatory control, hence improving India’s standing in world financial markets. Maintaining market stability and investor confidence will depend on constant monitoring and adjustment as these adjustments take effect to guarantee they meet their expected outcomes.
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