SEBI unlikely to implement 24-hour mandate on addressing market rumours, say sources

Earlier, this rumour addressal mandate was to be implemented on October 1, 2023.

Market regulator Securities and Exchange Board of India (SEBI) is unlikely to go ahead with its mandate requiring companies to confirm or deny market rumours within 24 hours of occurrence, sources with knowledge of the matter told Moneycontrol. The practice was supposed to come into effect from February 1, 2024 for large-cap companies and August 1, 2024 for mid-cap companies.

The regulator, along with BSE and National Stock Exchange (NSE) has formed a working group to completely overhaul LODR (Listing Obligations and Disclosure Requirements) and ICDR (Issue of Capital and Disclosure Requirements), the sources added.

“If the group comes out with its recommendations, which are further discussed, debated and finalised in a SEBI board meet before February 1, then there will be no further extension in timeline. If not, then the regulator might extend the timeline once again to give itself some more time,” a source said.

Also Read: Four IPOs including Tata Tech to open today: Which ones should you subscribe? Check details

Earlier, this rumour addressal mandate was to be implemented on October 1, 2023.

According to Moin Ladha, partner at Khaitan & Co, the implementation of such time-bound obligation is extremely onerous for listed entities, especially given the ever-expanding number of media platforms.

“To comply with this, listed entities need to develop an infrastructure to track all such rumours and to provide a timely response, failing which they would be liable for a penal action,” he said.

While enhancing transparency is a commendable goal, experts added that many corporates may not be able to comply with the strict 24-hour directive as a result of operating in different time zones.

“Nowadays, rumours circulate on Whatsapp groups too. To streamline this process, exchanges could consider establishing a platform to track rumors and seek clarifications from listed entities,” Kinjal Shah, a Chartered Accountant with KMS & Associates said.

Additionally, as companies routinely engage in certain activities which may not fructify and given that rumours may crop up at any stage, say pre-negotiation or even mid-negotiation, any acceptance or denial of such rumours may be premature and prove to be counterproductive for the listed entity, said Ladha.

For instance on November 7, a leading international agency reported that the Tatas are considering sale of Voltas Home Appliance Business. Following this, the company clarified that “the news is totally incorrect and blatantly false, with no factual basis whatsoever… the news has caused embarrassment, apart from concerns including by the shareholders/investors.” The stock fell 2 percent on that day.

“A forced acceptance or denial of a rumour may unwittingly lead to a negative commercial impact on the listed company which ultimately results in a negative impact on public shareholders,” Ladha said.

It could also inadvertently expose companies' strategies and intentions prematurely, potentially undermining their competitive advantage, added Shah.

Moneycontrol has sent an email query to SEBI and the story will be updated once we hear from them.