MC EXCLUSIVE SEBI may come up with common disclosure mechanism and penalty structure for listed companies for ease of compliance

SEBI may come up with common disclosure mechanism and penalty structure for listed companies for ease of compliance

• SEBI may allow simultaneous disclosure across all stock exchanges
• Proposal aims to reduce information gaps and ease compliance
• Reviewing common penalty framework for disclosure violations

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Market regulator Securities and Exchange Board of India (SEBI) is evaluating a proposal that would allow listed companies to make a common and simultaneous disclosure across stock exchanges. The proposal is being seen as part of efforts to improve the ease of doing business for listed companies and reduce information asymmetry among investors across different exchanges.

According to two people aware of the development, the proposal is currently under discussion stage to review compliance requirements for listed entities.

One person aware of the development said, “The proposal is being discussed in a panel which is tasked with easing listing compliance for companies.” The person added, “The stakeholders are largely agreeing to the proposal.”

Currently, listed companies are required to file disclosures separately with each stock exchange where their securities are listed, such as the NSE, BSE or MSEI. These disclosures are typically made through the exchanges’ respective online filing systems.

However, even when companies submit the same information to multiple exchanges at nearly same time, there can sometimes be a few seconds’ or a minute’s difference in the time stamps of disclosures appearing on different platforms. Investors have occasionally raised concerns over such time gaps, arguing that even small delays can create perceived information asymmetry between market participants tracking different exchanges.

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To address this issue, SEBI and the exchanges are evaluating a system under which companies would file disclosures with a single exchange, which would then automatically and simultaneously transmit the information to other exchanges where the company’s securities are listed. This will also help investors, as the disclosure will be same across exchanges simultaneously.

Exchanges already operate a similar mechanism for broker-related filings. In that system, brokers submit certain regulatory filings to one exchange, after which the details are shared with other exchanges through an integrated backend mechanism.

SEBI is also considering a proposal to introduce a common penalty framework for disclosure-related violations by listed companies. At present, exchanges impose penalties independently for the same violation, which can sometimes result in companies being penalised multiple times for a single compliance lapse. As was earlier for stock brokers, who were penalised separately by each exchange for the same issue.

According to a second person aware of the development, “Only one exchange will impose fine for violation and other exchanges will be informed,” and so “no other exchange will impose fine for the same violation,” the source said.

The proposals are likely to be examined by a working group set up by SEBI to review the SEBI (Listing Obligations and Disclosure Requirements) Regulations (LODR). The panel comprises company secretaries, compliance officers of listed companies, industry representatives, legal experts, stock exchanges and other stakeholders.

The panel has already held a couple of meetings and discussions are progressing well, people familiar with the matter said. It is expected that the group may submit its recommendations to SEBI by around June this year.

An email seeking comments from SEBI did not elicit any response.

At present, listed companies are given backend access to the exchanges’ disclosure platforms, through which they upload filings separately to each exchange. Under the proposed system, once a company submits a disclosure to any one of the exchanges where it is listed, the information would be automatically shared with other exchanges in real time.

People aware of the move said implementing the mechanism would require certain backend system changes at the exchanges to enable seamless transmission of disclosures across platforms.

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