Capital markets regulator Securities and Exchange Board of India (SEBI) says it is holding parleys with various stakeholders on defining the parameters for companies to report to the stock exchanges and disclosing material information from time to time, as per a Financial Express report. The discussions involve the government, SEBI and the stock exchanges.
The reason for this development is that there have been two specific instances, one involving Infosys and the other Yes Bank. These are just symptomatic examples and not the larger issue itself. In the case of Infosys, the company received some whistleblower complaints internally. It did not disclose them to the stock exchanges until the issue came out in the media. In the case of Yes Bank the company kept releasing information favourable to it which resulted in the share prices of Yes Bank moving up in the bourses.
The ‘Listing Obligations and Disclosure Requirements’ are the norms SEBI is reviewing currently and may come out with a comprehensive definition on the disclosures. For good measure SEBI is said to have included Primary Market Advisory Committee (PMAC) and Secondary Market Advisory Committee (SMAC) within SEBI in the consultative process.
SEBI is also going by some of the relevant recommendations contained in the report submitted by the 2017 Uday Kotak Committee on Corporate Governance.
“High-quality information represents the basic input for governance because it reduces the twin problems of reliability and asymmetric information, which refer to the fact that professional managers, board members and auditors possess significantly greater information than the average investor in these companies”. “These may get exacerbated by the possibility that good news may be revealed aggressively while bad news may be allowed to percolate slowly or remain undisclosed,” the report stated.
There are divergent views on what precisely constitutes material information affecting the company’s finances and in turn could have an impact on its share price. The challenge for SEBI is to protect the interests of the retail investors while not unduly harassing the companies.