SEBI in action: Stock exchanges to gear up

Every time you want some information on a company, you head straight for the company website. But quite often you find that digging out information on the company is not an easy job.

So, you mostly land up at the Web site of the stock exchange where the company is listed.

While you are at it, you can also update yourself on a couple of more companies. But what do you do when the information listed there is either inadequate or inaccurate? That’s the concern that SEBI has been raising in recent times.

FAILING ON DISCLOSURES

A company, as part of its listing agreement with a stock exchange, has to make certain disclosures. This requires it to file information, such as annual reports, quarterly financial results, shareholding pattern and corporate governance compliance reports.

The company also has to update the exchange on any event that can impact its financial performance or stock price. If a company fails to do so, then the stock exchange can take action against it.

However, as pointed out by SEBI, it is not just companies that have been in violation, stock exchanges too, have been falling short of adequately monitoring company disclosures.

Measures introduced by SEBI last week are aimed at addressing the latter.

The SEBI circular lists out how stock exchanges should go about the task of ensuring compliance from companies. The focus however, is not just on timely disclosures but also on the adequacy and accuracy of such disclosures. Stock exchanges have now been asked to treat inadequate and inaccurate disclosures by a company as a case of non-compliance.

SEBI has indicated some ways to improve the quality of monitoring by stock exchanges.

For instance, stock exchanges have been asked to compare information filed on shareholding pattern with that in the previous quarter (to look out for changes) and to find out whether the disclosures comply with the existing regulations, such as those on insider trading.

They have to keep themselves informed on media updates on companies to check whether the information has also been filed with them. Besides, separate cells have to be set up for monitoring company disclosures.

FOLLOW UP

While stock exchanges have been pursuing companies in case of unsatisfactory disclosures, what has been missing so far is an effective follow-up process. This is now set to change, as a detailed follow-up procedure has been laid out.

Deadlines have been set for exchanges to seek information and for companies to respond to the queries raised. What’s more, correspondence between the two has to be put up on the stock exchange Web site.

Also, SEBI has to be kept regularly updated (through an ‘exception report’) on defaulting companies and also on the action taken by the stock exchange concerned.

While these are steps in the right direction, given that stock exchanges are profit-making entities with commercial operations (besides a regulatory role) to be taken care of, one will have to wait and see how all this will be accomplished.

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