November 3, 2017

The planned system would capture and disclose changes in shareholding in a listed company

Markets regulator Securities and Exchange Board of India (Sebi) is working on a concept of system-driven disclosures that would capture and disclose changes in shareholding in a listed company, two people with direct knowledge of the matter said.

“The system being worked out will automatically gather and integrate the change in shareholding information from stock exchanges, depositories and registrar and transfer agents (RTAs) in a timely and accurate manner,” said one of the two people cited above, both of whom declined to be named.

The move is aimed at ease of doing business through system driven disclosure and this would remove additional reporting requirements, this person added.

In the latest edition of ease of doing business rankings released on Tuesday by World Bank, India jumped 30 positions to the 100th place among 190 countries.

According to an Economic Times report on 2 November, India is gearing up to leapfrog into the top 50 with around 90 specific reforms lined up for various ministries. Sebi’s move for automated disclosure is one of those.

An email sent to a Sebi spokesperson on Wednesday was not answered until press time.

“Use of technology for integrated disclosures will definitely usher ease of business. As it will reduce the compliance requirement on companies, promoters and individuals on reporting change of shareholding, this data will automatically be captured by depositories and exchanges,” said Sumit Agarwal, partner, Suvan Law Advisors.

“Once this system takes off we might see more disclosures being automated and further reducing compliance requirement,” Agarwal added.

Under the Listing Obligation and Disclosure Requirements, or LODR, companies need to report change in their shareholding pattern pursuant to a merger, de-merger, acquisition by promoters and issue of convertibles every quarter. Any violation observed leads to a penalty under the Sebi Act.

“Exchanges, depositories and RTAs have already been advised to make necessary arrangements in their systems in order to implement the said concept, which is being done in phases. While the first phase is focusing on capturing acquisition by promoters, promoter groups, the second phase, is to capture acquisitions by non-promoters and include other instruments such as convertibles,” said the second person, who too declined to be named.

However, there are teething issues emerging in making the system operational as the information captured by the market infrastructure institutions is not uniform and stock exchanges, depositories and RTAs are working to come to common ground.

“I believe the non-automated disclosures today pose a cost and a delay to absorption of relevant market information. Automating the process would reduce errors, increase efficiency of disclosures and also allow people to set their computers to observe changes in shareholding and analyse the same. It may help with private enforcement of misconduct too. It may be recalled that analysis of option exercise data enabled US professors to find that people were gaming the system and probably conducting illegally timed purchases,” said Saneep Parekh, Founder, Finsec Law Advisors.

“As the information would be collated from all the three market infrastructure institutes, it would analysed for discrepancies for penal action. This would also help in easing the Sebi resource allocation towards minor non-reporting of shareholding related violations,” explained the second person.

Many of the cases pending adjudication today are minor violations such disclosure lapses and systemic information gathering will ease the work load and help the regulator focus on important cases, this person said. While the legacy cases would need to be adjudicated or settled it would prevent further clogging of the system with minor infractions.

[Livemint]