Stock Market Debut: SEBI Proposes To Fill Gaps In Disclosure Of Financial Results
SEBI seeks to address potential misuse of disclosure requirements for financial results by newly-listed companies.
Newly listed entities may get at least 15 days from their stock market debut to submit their quarterly financial results, according to the market regulator’s latest proposals to its Listing Regulations.
The suggestion is prompted by the challenges faced by such companies if they list close to the regulatory timelines for disclosure of financial results. For instance, under the existing framework, the deadline to disclose results for the December quarter is Feb. 14. So, a company listed on Feb. 14 will have zero days to disclose its first results.
"Since the financial results are price sensitive information, such disclosures immediately after listing may have a large impact on the company’s share price even before the price of its scrip has stabilised post-listing," the regulator has pointed out.
And so, it has suggested a gap of at least 15 days between a new listing and the disclosure of the first financial results.
This is indeed a welcome move, according to Arka Mookerjee, partner at JSA, Advocates and Solicitors.
This will reduce the information asymmetries prevalent among newly listed companies and bring them into parity with already listed companies.Arka Mookerjee, Partner, JSA, Advocates and Solicitors
The regulator has also identified a potential misuse of the existing timelines under its Listing Obligations and Disclosure Requirements Regulations, 2015.
A company that lists immediately after the disclosure timeline can get away from including the latest financial results in its offer document by opting to list in a short window soon after such a timeline. To illustrate, a company that lists on Feb. 15 will not be required to include the December quarter results in the listing document. As the next quarter's results are not due till May 30, there is a gap of 104 days between the listing date and the first financial results.
This is not desirable, according to SEBI.
According to the regulator, such newly listed companies would be expected to submit their financial results within 15 days of listing or as per the applicable timeline under LoDR, whichever is later. This will ensure that newly listed companies have adequate time to submit their financial results, while preventing the misuse of any gap in the regime.
SEBI has proposed several changes to the timeline available for filling vacancies on the board of directors. In scenarios where the vacancy is intermittent, i.e., because of the death or disqualification of the director, such vacancies shall be filled within three months. However, if the entity is aware of the vacancy in advance, such as through a tenure competition or a change in the designation of an existing director, the vacancy must be filled immediately.
The existing regulations don’t stipulate any timeline for filling vacancies due to intermittent events.
Similar timelines are also proposed for filling the vacancies of chief financial officer, chief executive officer, and compliance officer. According to the proposal, any open position must be filled within three months.
In the opinion of Abhimanyu Bhattacharya, partner at Khaitan & Co., this is merely an expansion of the Companies Act provision that requires the position of MD/CEO or CFO to be filled within six months from the date of the vacancy.
The proposal for a period of three months has been made for listed companies, given various compliance requirements and responsibilities of a compliance officer, CEO and CFO of a listed company which is understandable. A listed company will have to manage the exit timelines and appointments of such key managerial personnel in a way that proposed timelines are met.Abhimanyu Bhattacharya, Partner, Khaitan & Co.
In a move to increase the accountability of whole-time directors, managing directors and chief executive officers, and reduce overall instances of non-compliance, it has been proposed to introduce provisions in the listing regulation that allow the freezing of their accounts.
The current regime allows for the freezing of promoters' accounts as well as the imposition of fees or the suspension of trading by stock exchanges in instances of non-compliance.
According to Bhattacharya, this proposal stems from the fact that there have been a number of professionally managed companies listing in the stock exchanges, which do not have an identifiable promoter so the current process on penalising promoters are not applicable to those companies. Accordingly, the proposal is to expand the net and cover MD, whole-time directors and CEOs for non-compliance by listed companies.
Comments on the proposals can be submitted until March 6.