Everything You Need To Know About Changes Proposed By SEBI In Disclosure Norms For Listed Companies

The Securities and Exchange Board of India (SEBI) has proposed changes to streamline the regulatory disclosure norms for newly listed companies. In a consultation paper published earlier this week, SEBI has sought comments and suggestions from stakeholders on its proposal to amend the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015. 

SEBI is looking to address issues including submission of the first financial results by newly listed entities, the timeline to fill up vacancies of directors, compliance officers, CEOs, and CFOs in listed entities, among others.

The development comes at a time when an increasing number of startups are getting listed on the bourses. While the number of startups going public declined in 2022 due to the global economic slowdown, several startups including OYO, PhonePe, Mamaearth, and Navi are expected to go public in the next few months. 

In order to address the discrepancies pertaining to financial disclosures filed by newly listed companies, SEBI has proposed to give at least 15 days to the companies from their date of listing to file their quarterly results.

Here are the key changes proposed by the market regulator:

Why Has SEBI Proposed The Changes Now?

Currently, listed companies are required to submit quarterly financial results within 45 days from the end of each quarter, barring the last quarter. They are required to submit quarterly financial results for the last quarter and the annual financial results within 60 days from the end of the financial year.

SEBI said it has received representations regarding challenges the newly listed entities face immediately after their listing and about the gap in the current regulatory provisions for ensuring timely disclosure of their first financial results.

“In cases when companies get listed close to the timeline prescribed for submission of financial results, they would be required to announce the first financial results within a very short period of time post listing. Since the financial results are price sensitive information, such disclosures immediately post listing may have large impact on the company’s share price even before the price of its scrip has stabilised post listing,” the regulator said in the consultation paper.

Giving an example, SEBI said if a company gets listed on January 1, it has 44 days to file its December quarter results, the last date for which is February 14. However, if a company gets listed on February 14, it is left with no time at all to file its December quarter results. 

Besides, as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, issuers are required to provide audited financial results in their offer documents but that cannot be more than six months old prior to the issue opening date. 

SEBI has noted that in such events, where companies list immediately after 45 days from the end of a quarter, they would not disclose the financial results for that quarter at all. 

In such cases, investors are deprived of information on the entity’s financial performance for one quarter after its listing.

Hence, SEBI has proposed that a newly listed entity disclose its first financial results post its listing, for the period immediately succeeding to the periods for which financial statements were disclosed in its offer document for IPO, within 15 days from the date of listing or as per the applicable timeline under LODR Regulations, whichever is later.

What Impact Will The Proposed Changes have?

According to Chirayu Chandani, partner, capital markets practice at Khaitan & Co, the proposed changes in the Listing Regulations, will bring uniformity to the approach of publishing financial results. They also address the challenges faced by newly listed companies in the submission of financial results post listing.

“Under the current law in force, depending on the date of listing in a quarter – while some newly listed companies were not getting adequate time to prepare and publish their financial results, others were not publishing the financial results of the last quarter at all,” he added. 

What Are The Other Proposals?

SEBI has also proposed that listed entities fill up any intermittent vacancy of a director, compliance officer, CFO, CEO, and MD at the earliest, but not later than three months from the date of such vacancy.

Besides, the regulator has also proposed to tighten the noose around the top company executives for their continuous non-compliance with the LODR Regulations.

It has proposed that the demat account of whole-time directors, including the MD, and CEO(s) be frozen, in addition to the demat account of the promoters, for non-compliance and/or non-payment of fines by a listed entity.

SEBI has set a deadline of March 6, 2023, to submit comments and suggestions on the proposals.

How Will It Impact Listed Startups?

SEBI’s proposal to set a deadline of three months for key appointments like that of CEO, CFO, compliance officers and directors will keep the listed startups on their toes if implemented. Startups are generally believed to have higher attrition rates. Most recently, Zomato has seen a series of high-level exits, while Nykaa appointed P Ganesh as its new CFO last month to replace Arvind Agarwal, who resigned in November.