Introduction
The Securities and Exchange Board of India (SEBI) recently amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) by way of SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2024 (LODR Amendment) dated 17 May 2024.
Post major amendments to the LODR last year, by way of SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 (2023 Amendment) (discussed here and here), in order to facilitate capital formation and ease of doing business, at the behest of SEBI, 3 industry associations, namely, ASSOCHAM, CII and FICCI, came together to form Industry Standards Forum1 (ISF) under the aegis of the stock exchanges to set industry standards. Further, considering the Finance Minister's pledge to "simplify, ease and reduce the cost of compliance" in the Union Budget for the financial year 2023-24, SEBI constituted an 'expert committee for facilitating ease of doing business and harmonization of the provisions of the ICDR and LODR Regulations' (Expert Committee).
The latest LODR Amendment has its foundations in the consultation paper on 'Interim Recommendations of the Expert Committee for facilitating ease of doing business and harmonization of the provisions of ICDR and LODR Regulations' dated 11 January 2024 (EODB Consultation Paper) as well as consultation paper on 'Amendments to SEBI Regulations with respect to Verification of Market Rumours' dated 28 December 2023 (RVR Consultation Paper) based on inputs from ISF.
The LODR Amendment is effective immediately from the date of publication (i.e., 17 May 2024), with an exception for some amendments that come into force from 31 December 2024.
The key changes brought about by the LODR Amendment can be placed in three broad categories: (a) amendments pertaining to market rumour verification; (b) amendments pertaining to market capitalisation computation; and (c) other governance and disclosure based amendments. The same have been detailed below.
A. Amendment pertaining to market rumour verification requirement
1. Clarifications on market rumour verification requirement:
The market rumour verification requirement (RVR) was brought by way of amendment last year. Based on representations from the industry, SEBI had deferred its implementation to 1 June 2024 for the top 100 listed entities and to 1 December 2024 for the listed entities ranked between 101 and 250. RVR in its pre-LODR Amendment avatar, mandated the listed entities to: (a) on its own, identify market rumour pertaining to it, which are not in general nature, and reported in the mainstream media; and (b) confirm, deny, or clarify the content of such rumour.
The key concerns with erstwhile RVR provision were threefold: (a) impact on price post confirmation of RVR which could impact deal dynamics, wherever the market price is used to calculate floor price, such as preferential allotment and open offer, etc.; (b) from deal-making perspective, lack of clarity on stage at which rumour with respect to transaction needs to be verified; and (c) very broad definition of mainstream media, which purportedly included 20,278 registered dailies and 543 tri/bi-weeklies in 2021-22,2 and reportedly, more than 390 news channels permitted by Ministry of Information and Broadcasting.
ISF took up the rumour verification requirement as one of the pilot projects for formulating standards for effective implementation of the said requirement, in consultation with SEBI. The LODR Amendment echoes India Inc representation through ISF on the need to ringfence RVR by limiting the scope thereof.
To address the first two concerns, the LODR Amendment linked RVR with material price movement (MPM), which would be specified by the stock exchanges. Further, the LODR Amendment provided that the method of calculation of unaffected price shall be as per the framework specified by SEBI. SEBI's circular titled 'Framework for considering unaffected price for transactions upon confirmation of market rumour' dated 21 May 2024 (SEBI Framework Circular) has set out this framework. Unaffected price shall be considered for transactions on which pricing norms specified by SEBI or stock exchanges3 are applicable, provided that the rumour pertaining to such transaction has been confirmed within 24 hours from trigger of material price movement. The LODR Amendment clarifies that unaffected price shall be considered by excluding the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the rumour.
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Footnotes
1 Haigreve Khaitan, Partner Khaitan & Co, is member of the ISF. Members of Khaitan & Co engaged and participated in the activities and discussions at ISF.
2 Press in India 2021-22 published by the Office of Registrar of Newspapers for India
3 Pricing norms provided under / specified by: (a) preferential issue or qualified institutional placement under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR); (b) open offer price under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST); (c) buyback of securities under SEBI (Buy-Back of Securities) Regulations, 2018 (Buyback Regulations); or (d) SEBI or stock exchanges, shall be excluded from the calculation of the material price movement.
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