The Securities and Exchange Board of India (“SEBI“), by way of its notification dated June 14, 2023, amended the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations“). Through this amendment, the SEBI introduced a crucial, timely and rather unique requirement for the top 100 and top 250 listed entities in India to address market rumours.
The requirement has been introduced by way of an amendment to Regulation 30 read with Schedule III of the LODR Regulations (“Regulation 30 Amendment“). Earlier, Regulation 30 left the confirmation/denial of reported events/information to stock exchange(s), to the discretion of the listed entities and did not impose further obligations in this regard.
In addition to the aforementioned discretionary provision, the Regulation 30 Amendment requires that the top 100 listed entities (with effect from October 1, 2023) and thereafter, the top 250 listed entities (with effect from April 1, 2024) ought to confirm, deny or clarify any reported event/information in the ‘mainstream media’ which is not general in nature and which indicates that rumours of an impending specific material event/information are circulating amongst the investing public. It further requires that this ought to be done as soon as reasonably possible and not later than 24 hours from the reporting of the event/information. Additionally, in the event any such event/information is confirmed, the listed entity is required to provide the current stage of such event/information.
The full breadth of the Regulation 30 Amendment may be grasped in the context of what a “top listed entity” and “mainstream media” have been defined as. The explanation inserted in Regulation 30(11) stipulates that the top 100 and 250 listed entities would be determined on the basis of market capitalization, as at the end of the immediately preceding financial year. The notification also inserts Regulation 2(1)(ra) as a definition of “mainstream media”.
Mainstream media is defined to include print or electronic mode of: (i) newspapers registered with the Registrar of Newspapers for India; (ii) news channels permitted by the Ministry of Information and Broadcasting under the Government of India; (iii) content published by the publisher of news and current affairs content as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021; and (iv) newspapers or news and current affairs content similarly registered or permitted or regulated, in jurisdictions outside India.
The sentiment behind the Regulation 20 Amendment has been covered in Paragraph 3.4 of the SEBI’s Consultation Paper on the review of disclosure requirements for material events or information under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Consultation Paper“). In this Consultation Paper, the SEBI clarifies that “the verification of reported events or information which may have material effect on the listed entity is essential to avoid establishment of a false market sentiment or impact on the securities of the entity.”
The SEBI highlights the requirements of the listed entities to stay contemporary and ensure that the rumours which float on television, print media and digital media are verified. It is also crucial to note that, Paragraph 2.7 of the Consultation Paper sets forth the aforementioned concern in the background of how listed entities are required to provide specific and adequate replies to all rumour verification queries raised to them by stock exchange(s) relating to any event or information pertaining to them (being circulated through rumours, social media, etc.).
While this move by the SEBI has all the right intentions—especially given the contemporary trend of investors taking high-risk investing decisions based on information they unwittingly come across on both print and digital media, and the inevitable turbulence that is consequently felt by the economy at large—certain unanswered questions about stringency, practicality, scope, and reach have made this particular amendment rather contentious.
In addition to the short 24-hour deadline and vague terms like “general” and “material event” inserted into Regulation 30; the sheer scope of what falls under the umbrella of “mainstream media” is immeasurable—with tens of thousands of newspapers, news channels and other media sources operating simultaneously in India (in numerous languages and regions)! In addition, the final item in the definition of “mainstream media” covers foreign “newspapers or news and current affairs content similarly registered/permitted/regulated”. This makes the scope of this compliance expensive at best and ‘impossible to fully satisfy’ at worst.
Additionally, most public media sources owe their traction and expansive reach to active algorithm tracking, AI, and loyal follower-bases—a wholly separate domain from what many listed entities are involved in. The number of people that receive the clarifications (issued by the listed entities) is therefore likely to be disproportionate to the number of people exposed to the rumours.
However, the global market does currently showcase a glaring vacuum for innovation in this space and time is likely to tell whether more nuanced steps shall be taken by the listed entities or by the legislators themselves, to simultaneously solve the challenges of inaccurate rumours and the safeguarding of investor interests.