Subrata Roy's Sahara effect : SEBI aims to close gaps.

Mar 10 2014

New Delhi 

Wiser after the Subrata Roy-led Sahara group episode, the stock market regulator plans to substitute listing agreements which companies execute with stock exchanges with regulations, instead.

The Securities and Exchange Board of India (SEBI) expects the move will align Indian rules with some of the best global norms. Essentially, since regulations are like laws, breaking them would cost a company dear in terms of the punishment the regulator can bring to bear upon them.

The moves aims to synchronise the information made available by companies in their offer documents while coming up with their IPOs with the disclosures in the annual report every year.

More, since listing is a requirement between companies and exchanges have less standing than regulations laid down by regulator, in this case the SEBI.

“It has been work-in-progress and continuous disclosures by companies will lead to more information being made available by companies every year through their annual report. There is a gap currently in the disclosures made by companies in their offer documents while coming up with IPOs and those that are there in the annual reports,” said Sandeep Parekh of Finsec Law Advisors.

So for instance, the new norms like allowing an independent director board membership of only seven companies will become regulations instead of part of just codes and such like.

Similarly, the issue of disclosure of corporate risk came to the fore as in the case of Sahara. Following the disclosures made by Sahara Prime City in its offer document the regulator went in but since there was no regulations but only listing norms enforceability was difficult.

Regulations with in-built continuous disclosure requirements will make it easier for investors and the regulator to monitor the companies.

SEBI has been working on this for over six years now and in January 2008, a sub committee led by Sandeep Parekh including Dipti Neelakantan, Prithvi Haldea, SR Mehta, Ranganath Char, K Hari and Gopala Krishna Iyer had submitted a report on integrated disclosures where it called for strengthening continuous disclosures.

“If we could do that with today’s technology and thus improve the quality of information while reducing the quantity, information would become more readable, access to investors will be wider. Data concerning business, property, management, financial condition, and results would be available at all times and updated in a single document whether there is an issue of capital or not,” the report said.

The report further said that continuous disclosure by companies will make it easier for and cheaper for companies to raise capital from the market as they will only be required to come out with a memorandum of transactional details with each issue.