By Rupin Chopra and Shantam Sharma
As we stand on the precipice of bidding farewell to 2023, the Indian stock market’s celebratory mood is palpable, thanks to the BSE Sensex shattering the historic 70,000-mark1. This record-breaking feat is complemented by the stellar performance of Initial Public Offerings (IPOs) throughout the year, transforming the equity market into an irresistible investment avenue. Adding to the intrigue is the anticipation surrounding the National Stock Exchange (NSE) , poised to launch its Initial Public Offering, albeit subject to stringent conditions imposed by the Securities and Exchange Board of India (SEBI).
NSE’s Journey to Public Listing
The excitement surrounding the NSE’s IPO has reached a crescendo, with investors eagerly awaiting a chance to be part of this significant milestone. However, SEBI, the vigilant overseer of India’s capital markets, has laid out specific conditions for NSE to meet before making its debut in the public domain. These conditions , including a glitch-free operational track record for a minimum of one year, technological infrastructure upgrades, enhanced corporate governance structures, and resolution of pending legal matters, underscore SEBI’s commitment to ensuring a robust marketplace.
Connecting the IPO Surge with SEBI’s LODR Amendments
To comprehend the implications of these conditions and their alignment with the disclosure regime, a closer examination of SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 , is imperative. These regulations, serving as a linchpin for transparency and safeguarding stakeholder interests in listed entities, have undergone substantial amendments.
SEBI’s Recent Amendments: Elevating Transparency Standards
In June 2023, SEBI introduced pivotal amendments to the LODR Regulations, marking a watershed moment in reinforcing the disclosure framework. One of the noteworthy changes mandates the top 100 listed entities from February 01, 2024, and the top 250 listed entities from August 01, 2024, to expeditiously confirm, deny, or clarify any reported event or information in the mainstream media regarding specific material events within a stringent 24-hour timeframe.
Quantitative Thresholds and Materiality Criteria (Regulation 30(4)(i)(c))
The introduction of quantitative thresholds marks a paradigm shift in the regulatory landscape, underscoring SEBI’s dedication to transparency in reporting material events. Now, a listed entity must disclose an event or information if its value or expected impact exceeds the lower of 2% of turnover, 2% of net worth, or 5% of the average of absolute value of profit or loss after tax, based on the last three audited consolidated financial statements.
Expansion of Deemed Material Events (Regulation 30(4))
SEBI’s amendments have broadened the scope of deemed material events, compelling listed entities to disclose information related to acquisitions, sale of stake in associate companies, and agreements among stakeholders that impact management or control. This expansion enhances transparency by bringing more critical events under regulatory scrutiny, providing stakeholders with a comprehensive view of a company’s strategic decisions.
Enhanced Scrutiny on Communication Channels (Regulation 30(8))
The heightened scrutiny on communication channels, both mainstream and social media, ensures that information disseminated by key stakeholders is promptly disclosed. This move prevents information asymmetry and reinforces the regulator’s commitment to maintaining a level playing field for all market participants. By addressing potential gaps in the dissemination of crucial information, SEBI aims to enhance investor confidence and mitigate the risk of market misinformation.
Shareholders’ Approval: A Paradigm Shift (Regulations 17(ID), 31B, 37A)
SEBI’s amendments usher in a paradigm shift by necessitating shareholders’ approval for the continuation of directors on a listed entity’s board and for granting special rights to shareholders. This move empowers shareholders in decision-making processes, fostering a sense of governance and aligning the interests of management with those of investors. Additionally, the requirement for shareholders’ approval for significant business transactions, as introduced in Regulation 37A, enhances transparency and ensures that such decisions have the backing of the shareholder community.
Cybersecurity Disclosures: A Forward-looking Step (Regulation 27(2)(ba))
In a forward-looking move, SEBI has mandated listed entities to disclose details of cybersecurity incidents, breaches, or loss of data in their quarterly Corporate Governance Reports (CGR). This regulation, effective from July 14, 2023, aimed to enhance transparency and safeguard the interests of investors and stakeholders in an era of increasing digital dependence. By addressing the growing threat of cyber risks, SEBI demonstrates its commitment to fortifying the resilience of the Indian capital markets.
Analysis and Probable Effects
The comprehensive analysis of SEBI’s LODR amendments reveals a strategic alignment with the evolving dynamics of the Indian capital markets. Beyond being a regulatory directive, these amendments serve as a proactive response to the challenges posed by a rapidly changing business environment.
The introduction of quantitative thresholds in Regulation 30(4)(i)(c) represents a nuanced approach toward materiality. By tying disclosure requirements to specific financial metrics, SEBI aims to provide investors with a more accurate assessment of the impact of material events on a company’s financial health. This not only aids in risk assessment but also enhances the overall quality of information available to investors.
The expansion of deemed material events in Regulation 30(4) showcases SEBI’s responsiveness to the evolving corporate landscape. By including acquisitions, sale of stake in associate companies, and agreements impacting management or control, the regulator ensures that stakeholders are apprised of critical developments that may influence a company’s strategic direction.
The heightened scrutiny on communication channels, both mainstream and social media, is a timely response to the changing dynamics of information dissemination. In an era where news travels rapidly through various channels, ensuring prompt disclosure of information by key stakeholders mitigates the risk of information asymmetry and market misinformation.
The paradigm shift in requiring shareholders’ approval for key decisions, as reflected in Regulations 17(ID) , 31B, and 37A, signifies a move toward enhanced shareholder democracy. This shift empowers shareholders, making them active participants in decisions related to the continuation of directors, granting special rights, and approving significant business transactions. The potential effect is a more engaged and informed investor community, contributing to a healthier corporate governance ecosystem.
The cybersecurity disclosure mandate, embodied in Regulation 27(2)(ba), showcases SEBI’s foresight in addressing emerging risks. By requiring detailed disclosures of cybersecurity incidents, breaches, or loss of data, the regulator acknowledges the growing threat landscape in the digital age. This move not only enhances transparency but also ensures that investors are informed about the measures taken by listed entities to safeguard sensitive information.
SEBI’s LODR amendments are not just a regulatory response but a strategic move to fortify the foundations of the Indian capital markets. The nuanced approach to materiality, expanded disclosure requirements, heightened scrutiny on communication channels, and a shift toward enhanced shareholder democracy collectively contribute to a regulatory framework that aligns with the evolving needs of the market. As we stand at the cusp of a new era in Indian capital markets, these amendments position the market for sustainable growth, increased investor confidence, and heightened global competitiveness.
 Available at: https://www.hindustantimes.com/business/sensex-crosses-70-000-points-timeline-of-what-led-to-historic-stock-market-moment-101702357069308.html#:~:text=BSE%20Sensex%20created%20history%20a,the%20previous%20close%2C%20on%20Friday
 Available at: https://www.livemint.com/market/stock-market-news/nse-ipo-sebi-lays-down-conditions-to-launch-ipo-here-s-all-you-need-to-know-11702899944443.html
 Available at: https://www.sebi.gov.in/legal/regulations/jan-2022/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-january-24-2022-_55993.html
 Available at: https://www.business-standard.com/markets/news/sebi-comes-out-with-stricter-timeline-for-disclosure-of-material-events-123071300755_1.html
 Regulation 30 (4) of SEBI LODR
 SEBI Circular titled Extension of Timeline for Verification of Market Rumors by Listed Entities dated September 30, 2023- SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/162
 Newly introduced Regulation 17(1D) of the LODR provides that the continuation of a director serving on the board of directors of a listed company will be subject to shareholder approval in a general meeting at least once every five (5) years from the date of appointment or reappointment