FinTechAn Overview of the SEBI (Listing and Disclosure Requirements) (Amendment) Regulations, 2024

INTRODUCTION

The Securities and Exchange Board of India (hereinafter referred to as the “SEBI”) plays a crucial role in regulating the Indian securities market. Established in 1988 and empowered by the SEBI Act of 1992, SEBI’s mandate includes protecting investor interests, ensuring market integrity, and promoting the development of the securities market. By setting forth stringent regulatory frameworks & regulations, SEBI aims to maintain transparency, accountability, and efficiency in the market.

The Listing Obligations and Disclosure Requirements (hereinafter referred to as the “LODR”) regulations are pivotal in governing the conduct of listed entities in India. These regulations mandate disclosures that facilitate informed decision-making by investors and ensure fair practices in corporate governance.

The SEBI vide notification dated May 17, 2024 has notified the SEBI (Listing and Disclosure Requirements) (Amendment) Regulations, 2024. This amendment finds its foundations­ in recommendations from a consultation paper released on January 11, 2024, by the ‘Expert Committee for Facilitating Ease of Doing Business and Harmonisation of the Provisions of ICDR and LODR Regulations’ (hereinafter referred to as the ‘Committee’) formed by SEBI late last year.

The SEBI (Issue of Capital and Disclosure Requirements) Regulations (hereinafter referred to as the “ICDR”) have laid down the rules that companies have to follow when making an initial public offer (hereinafter referred to as “IPO”) while the LODR Regulations, state the regulatory requirements for all listed entities. These amendments aim to enhance market transparency, strengthen corporate governance, and protect investor interests.

KEY AMENDMENTS IN THE 2024 LODR REGULATIONS

1. Revised Market Capitalization Calculation Method

It is to be noted that vide Clause 3 (I) of the Notification, SEBI has implemented a new methodology for calculating market capitalization, effective from 31^st December 2024.

Previously, a company’s ranking was determined based on its market capitalization as of 31^st March or the fiscal year-end. Under the new regulations, recognized stock exchanges are required to compile a list of entities that have listed their securities as of 31^st December. These entities will be ranked based on the average market capitalization calculated from 1^st July to 31^st December.

This change aims to improve the accuracy of market capitalization calculations by considering a more extended period, reducing the impact of short-term market fluctuations. The amended provisions will apply to listed entities for the first time after three months from 31^st December or from the beginning of the immediate next financial year, whichever is later. These provisions will continue to apply unless a listed entity remains outside the specified threshold for three consecutive years.

2. Rumor Verification Linked to Material Price Movements

In Clause 3 (VIII) of the Notification, SEBI has brought in amendments to enhance transparency and timeliness in verifying market rumors, and has linked the rumor verification process to Material Price Movements (hereinafter referred to as “MPM”). Listed companies are now required to confirm, deny, or clarify any rumors within 24 hours of an MPM trigger. SEBI has also issued a framework for top entities to consider unaffected prices in case of market rumors. An Industry Standards Forum, including representatives from ASSOCHAM, CII, and FICCI, has been established to effectively implement these requirements.

3. Prompt and Accurate Responses from Key Executives

Using Clause 3 (IX) of the Notification SEBI mandates that promoters, directors, key managerial personnel, or senior management of listed companies must promptly respond to any queries necessary for compliance with Regulation 30(11). Companies must immediately share these responses with the stock exchanges. This amendment aims to ensure accountability and prompt responses from key executives, improving overall transparency.

4. Extended Timeframe for Filling Key Executive Vacancies

Clause 3 (VI) of the notification has extended the timeframe for filling key executive vacancies that require regulatory, Government, or statutory approvals. Companies now have six months to fill such vacancies, with an additional three-month period granted in cases where approvals are required. This extension provides companies with adequate time to ensure that the best candidates are appointed to key positions.

5. Uniform ‘Two-Day Notice’ for Stock Exchange Intimations

Using Clause 3(VII) of the aforementioned notification, SEBI has standardized the notice period for stock exchange intimations to two working days. Companies must provide prior intimation to the stock exchange under Regulation 29, mentioning the date of the board meeting when proposals will be discussed. This uniform notice period also applies to fundraising through any money market instrument, ensuring timely and accurate communication with the stock exchanges.

6. Extended Interval Between Risk Management Committee Meetings

Vide Clause 3 (IV) the notification, extends the maximum gap between two risk management committee meetings for the top 1,000 listed entities and high-value debt-listed entities to 210 days. This extension allows entities more time to prepare comprehensive risk management strategies and reports, thereby enhancing the effectiveness of their risk management practices.

7. Compliance Extension for High-Value Debt-Listed Entities

In the II subpoint of Clause 3, SEBI has provided high-value debt-listed entities with an additional year to comply with Chapter IV of the LODR Regulations. The compliance deadline has been extended until 31st March 2025. High-value debt-listed entities are those with non-convertible debt securities with an outstanding value of Rs 500 crore and above.

AMENDMENTS AT A GLANCE

IMPLICATIONS & ANALYSIS

The amendments introduced by SEBI signify a significant overhaul aimed at strengthening market regulation across India’s capital markets. This comprehensive reform spans several critical areas, each aimed at enhancing transparency, governance, and investor confidence.

Firstly, the revised market capitalization criteria ensure that regulatory obligations are tailored to different categories of entities, providing clearer benchmarks for investor evaluations. This alignment with company scale and market dynamics mitigates risks associated with misclassification and fosters more informed investment decisions.

Secondly, a notable mandate under the amendments is the requirement for timely appointments of KMP and Chief Executive Officers (hereinafter referred to as “CEOs”). This measure enhances corporate governance by ensuring continuity in leadership and bolstering board accountability. By filling leadership positions promptly within six months of vacancy occurrence, companies reduce operational uncertainties and strengthen organizational stability, critical for maintaining investor confidence.

Thirdly, SEBI’s amendments introduce stricter disclosure requirements across financial, governance, and Environmental, Social, and Governance (hereinafter referred to as “ESG”) aspects. These enhancements aim to curb speculative activities, promote investor confidence, and offer stakeholders a clearer view of company operations and risks. The mandate for rigorous reporting standards seeks to minimize misinformation or market manipulation, thereby fostering a more transparent and accountable market environment.

Despite the anticipated benefits, SEBI’s amendments have faced criticism, particularly regarding the heightened administrative burden imposed on companies. Small and medium-sized enterprises (hereinafter referred to as “SMEs”) may struggle with resource allocation to meet the stricter disclosure norms, potentially diverting attention from core operations and affecting regulatory compliance.

Additionally, concerns have been raised about the feasibility of filling KMP and CEO vacancies within the mandated six-month period, especially when suitable replacements are not readily available. This pressure to expedite appointments could compromise the quality of leadership transitions and overall governance standards, undermining the amendments’ objectives.

Global practices underscore the importance of balancing regulatory rigor with operational feasibility. Lessons learned from international benchmarks emphasize transparency’s critical role in fostering investor confidence and maintaining market integrity, while adapting to regional market conditions and governance frameworks.

Furthermore, the amendments impact investor relations strategies, emphasizing transparency and disclosure in communications. Companies must enhance communication strategies to provide clear and comprehensive information to investors through channels such as investor presentations, annual reports, and regulatory filings. Improved investor relations are crucial for fostering trust, reducing information asymmetry, and attracting long-term investment. Enhanced transparency through detailed disclosures and timely clarification of market rumors promotes investor confidence by providing accurate information for informed decision-making.

AMLEGALS REMARKS

The LODR Regulations introduce pivotal changes aimed at enhancing market transparency, strengthening corporate governance, and safeguarding investor interests. Key amendments include revised market capitalization criteria, mandatory timely appointments for KMP, stringent disclosure requirements on market rumours, and enhanced overall disclosure norms.

The long-term impact of these amendments is expected to be positive, fostering a more transparent, accountable, and resilient securities market in India. As SEBI continues to refine its regulatory framework, further amendments may be introduced to address emerging challenges and align with global best practices.

Stakeholders, including listed companies and investors, must stay informed and proactive in complying with the new regulations. By understanding and adhering to these amendments, companies can enhance their governance practices, maintain investor confidence, and contribute to the overall stability and growth of the Indian securities market.

– Team AMLEGALS assisted by Ms. Saumya Tibrewala (Intern)

For any queries or feedback, feel free to connect to mridusha.guha@amlegals.com or liza.vanjani@amlegals.com