SEBI’s Proposed Changes Target Market Rumors: What You Need to Know
By Sandeep Parekh
The Securities and Exchange Board of India (SEBI) has unveiled a consultation document on December 28, 2023, proposing significant amendments aimed at addressing concerns surrounding market rumors. The focus of these changes is to prioritize the verification of material events that lead to substantial price movements triggered by such rumors.
New Requirements for Listed Entities
If a notable price shift is instigated by a market rumor, the proposed amendments would require the concerned entity to provide clarification within 24 hours of the consumer media reporting. With over 140,000 newspapers and magazines registered in India, adhering to this time constraint presents a monumental challenge for listed companies, as they would need considerable resources to monitor and respond to every rumor.
Shifting the Focus on Price Movement
The proposed framework emphasizes the need to analyze price variations rather than solely focusing on specific events as described in Regulation 30 of the FULR regulations. This shift indicates that if price movements are primarily due to rumors, the responsible entity will be expected to verify the rumor’s validity, thereby reflecting the dynamic nature of market perceptions.
Comparison with Market Indices
Moreover, SEBI suggests using price trends of listed entities in comparison with benchmark indices like NIFTY50 and Sensex. This proposal aims to enhance market transparency by providing a comparative picture of price movements, thus allowing for better understanding and management of speculation within the markets.
Challenges of Premature Disclosure
One major apprehension stemming from these proposed changes is the risk of unintended consequences associated with premature disclosures. Not all rumors necessitate immediate public clarification, and the obligation for rapid disclosures might inadvertently create market distortions, particularly in sensitive situations like merger negotiations, where minor leaks could skew market valuations and influence corporate strategies.
Clarifying Complex Corporate Structures
The practicality of requiring clarifications related to rumors involving promoters, executives, and key management personnel (BMP) is another concern. In multifaceted corporate environments, obtaining timely responses can be problematic, potentially affecting the integrity and credibility of the entity amidst ongoing speculation.
A Call for Balance in Regulation
To ensure compliance, listed companies may have to establish dedicated teams for rumor monitoring and clarification. SEBI plans to mandate that unverified information from media cannot be used as a defense against accusations of market manipulation, which places additional pressure on individuals to stay informed about company clarifications.
Creating a Sustainable and Trustworthy Framework
Finding the right balance between regulatory oversight and the flexibility required for companies to operate effectively is paramount. Collaboration between SEBI and stock exchanges is essential for creating a transparent, responsive system that can effectively address market rumors. This partnership could cultivate a proactive approach to managing market speculation while recognizing that not all rumors warrant immediate disclosure.
As SEBI navigates this complex regulatory landscape, feedback during the consultation period will play a critical role in shaping a framework that supports sustainable growth and integrity in India’s financial markets. Achieving this delicate balance is key to fostering investor trust and ensuring a dynamic market environment.
Author’s Note: Sandeep Parekh is a partner director at FINSEC Law Advisers, co-written with Manas Dhagat, Partner at the same firm.