Market Rumours: SEBI Paper Casts Obligation on Promoters, Directors and KMPs To Provide Response to Queries
Moneylife Digital Team 02 January 2024
Market regulator Securities and Exchange Board of India (SEBI) floated a consultation paper seeking comments on a proposal to keep material price movement as the criteria to verify market rumours instead of material events in terms of regulation 30 of SEBI listing obligations and disclosure requirements (LODR) regulations. The obligation to disclose material events, information, and market rumours is cast upon the listed entity. The rumour verification requirement will be applicable to the top 100 listed entities from 1 February 2024 and to the top 250 listed entities with effect from 1 August 2024, as specified by a SEBI circular.
 
SEBI introduced the rumour verification requirement to avoid false market sentiment or impact on the securities of the listed entity. "There may be many rumours circulating in the market which may or may not have material impact on the securities of the listed entity. Hence, it was envisaged that only rumours about material events or information should require verification by the listed entity. As per the existing rumour verification requirement, rumour should concern an impending specific 'material' event or information in terms of the provisions of regulation 30 of LODR regulations."
 
Under regulation 30(11) of LODR regulations, market rumours must be verified within 24 hours of reporting in the mainstream media. Rumour verification requirement is one of the pilot projects undertaken by the Industry Standards Forum (ISF) formed by three industry associations, ASSOCHAM, FICCI and CII, under the aegis of the stock exchanges, for formulating standards for effective implementation of the said requirement, in consultation with SEBI.
 
As proposed by ISF, the rumour verification requirement will be applicable if there is a material price movement in the securities of the listed entity, including price range and movement in the benchmark index, like Nifty50 and Sensex. 
 
"For securities under high price range, even a smaller percentage variation in the price would lead to a higher price variation in absolute terms. Hence, for determining material price movement, a lower percentage variation should be considered for securities falling under high price range and a higher percentage variation should be considered for securities falling under low price range," the consultation paper says.
 
As per the paper, SEBI is considering an obligation on promoters, directors, key managerial personnel (KMP) and senior management to provide adequate, accurate and timely response to the queries raised or explanation sought in respect of market rumours by the listed entities to ensure compliance with regulation 30(11) of LODR regulations.
 
However, there may be instances where the rumour may pertain to promoters, directors, KMP and senior management and the listed entity may need to seek information from such persons in order to provide adequate, accurate and timely disclosure to the investors and to ensure compliance with regulation 30(11) of LODR regulations.
 
"Therefore, there is a need to cast an obligation upon the promoters, directors, KMP and senior management to provide adequate, accurate and timely response to the queries raised or explanation sought by the listed entity in order to ensure compliance with Regulation 30(11) of LODR Regulations," the SEBI consultation paper says.
 
SEBI is also considering a mechanism to ensure that an unaffected price is considered with respect to transactions relating to the securities of a listed entity upon confirmation of the market rumour.
 
The first proviso to regulation 30(11) of LODR regulations requires listed entities to verify and confirm, deny or clarify market rumours which are reported in the mainstream media (rumour verification requirement).
 
According to the paper, there may be instances where a rumour pertaining to a listed entity is circulating in the market but doesn't result in material price movement in the scrips of the entity. "In case the listed entity has classified certain information as UPSI and the entity neither confirms, denies or clarifies market rumour pertaining to such information published in the media, then such media reports should not be used later by an insider as a defence that the information was 'generally available'," it says.
 
SEBI is inviting comments or suggestions, along with rationale, by 18 January 2024 preferably through online mode at https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes
 
Alternatively, comments or suggestions can also be sent by email to [email protected].
 
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