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Editorial

Published on: Dec. 1, 2020, 2:13 p.m.
SEBI’s public disclosure discussion
  • Illustration: Panju Ganguli

By Business India Editorial

The practice of selective disclosure by the management to certain stakeholders at either post results analyst meets or in private meetings sought by fund managers and a few high net worth groups, is discriminatory. Besides, it is detrimental to the interests of the minority shareholders who are often not privy to the discussions and at a patent disadvantage over other, larger players. SEBI should be given kudos for finally framing this malpractice. A sub-committee formed under the aegis of Keki Mistry submitted its recommendations in the last fortnight of November and SEBI has promptly come out with a public discussion paper on the subject.

The paper highlights the practices and tackles the problems of information asymmetry across various classes of shareholders. Many companies which hold meetings with select analysts often tend to give forward looking statements at such meeting, generally called at the behest of some broking outfit or another. Price-sensitive information and projections do not get captured in the post quarterly results of many companies. Most companies do not disseminate the information received from the analyst to the general public or put it up on either their own corporate website or the stock exchanges site. A few do. 

They do not often share it with other analysts or journalists, despite requesting them to do so. The normal plea – ‘We do not have the habit of storing such information and SEBI has not mandated public sharing!’ The committee has recommended putting a stop to such practices. However it has stopped halfway and said companies should share information on a voluntary basis over the next 12 months and this will be made mandatory thereafter.

One fails to understand the need for giving the choice to the management of companies to share or not share. It goes against all tenets of equity to allow companies to continue with this discriminatory practice for another 12 months and only make it mandatory thereafter.  No great software or effort is required on the path of the companies to record the entire meeting live. Currently, during the Covid period a telephonic recording of the meeting can be done instantaneously and it should be compulsory to upload the recording on the website without any outside editing.

If the management does make some forward looking statements, these should not be off-record and only available to be used by a few analysts in their presentations. All shareholders should be treated equally, both on paper and in practice. SEBI is required to accept the report in toto and make it obligatory for companies to disclose the information within a few hours. The actual verbatim transcript can be uploaded two days later, on both sites.

SEBI should also ensure that when information is disseminated on the exchanges, the subject line requires to clearly mention the post quarterly analysts meet. Information on the stock exchange site should be posted with the aim of aiding price discovery. More often than not companies put up pdfs with the subject line. There are a 1001 things mandated by the listing agreement. However, some clarity regarding the subject line will help investors. 

Currently, in the USA, private meetings with so called sophisticated investors are not allowed. One call hosted by a fund house or a private broking outfit is made soon after the quarterly results are announced. Entry is not restricted but allowed to one and all who wish to know more about the company. Presentations are normally shared. The committee has pointed out that US Regulation Fair Disclosure does not allow management to make any material non-public  to any institutions or anyone, without concurrently making the information public. 

In EU and UK, Market Abuse Regulation expressly prohibits management from giving any material information to small groups of investors. Even if a disclosure is made subsequently, it is treated as a breach. Given such strict conditions, trading on inside information is a rarity in these markets. It has not stopped and does happen in a big way sometimes. However in such cases, the truants trading on price sensitive information are quickly brought to book by SEBI and fined. While proving insider trading is difficult and nailing the culprits even more so, a few are brought to book how big they are and this does act as a deterrent amongst aspiring traders wanting to make a quick buck. 

Given that this is the investor awareness period celebrated globally, SEBI will do everyone a big favour by bringing about a change in information disclosure without giving any leeway to companies to disclose or not disclose for a year.

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