SEBI order on listed entities: Boost likely for investor protection

India is set to become one of the few major economies in the world that will soon require all listed entities to record and release audio-video and text transcripts of meetings held with every institutional investor.

The move by capital market regulator — the Securities and Exchange Board of India (SEBI) — has dramatically raised the standards for investor protection and set a new benchmark with respect to disclosure standards applicable to listed companies.

At present, listed companies are required to publicly disclose the schedule of analyst and institutional investors meetings and the presentations at such interactions.

The SEBI board has now amended the existing regulation covering disclosures for analyst and institutional investor meetings by any listed entity.

The additional disclosure requirement will have to be mandatorily followed by listed entities when interacting with mutual funds, pension funds and insurance companies among others.

Listed companies will need to conduct audio, video recordings of all such meetings and disclose them on their website and to the stock exchanges before the next trading day or within 24 hours. Additionally, written transcripts will also have to be made public within five working days of such meetings.

Several market participants have welcomed the move as one that favours retail investors with greater access to company information, while others feel it may impose unreasonable restrictions on business.

Taking to Twitter, Deepak Shenoy, founder, Capital Mind, said it was an excellent step “considering how often companies are meeting privately with analysts. Companies signal things to analysts which deserve to be in the public domain”.

Portfolio manager Amit Kumar Gupta pointed out that “SEBI is mandated to implement global standards of market regulations in India, especially in the area of investor protection, systemic safety, and prohibition of unethical and fraudulent market practices”.

Gupta added that the United Kingdom implemented this disclosure requirement in 2016.

“Many companies in India record and upload audio of all their investor meetings. HDFC Group companies do that,” he said.

Some market participants point to the distinction that is normally made between calls that companies hold with analysts’ after declaring their financial results and the regular interactions that an institutional investor may have with an investee company.

While greater disclosure and transparency is always welcome, some market participants feel the move imposes a straitjacket on managements and may impact the nature of many deliberations that they have with their investors.

“This is bizarre and quite sudden. What this implies is that institutional investors are going to have every interaction with their investee companies recorded,” an institutional investor told this writer.

“If I have invested in a company as an institution and meet the management, how can that be recorded and put on a website? This move does not appear to be well thought through. It fails to appreciate the nuances and will have a chilling impact on normal conversations that shareholders can have with management of their investee companies,” the executive added.

Pointing out that meetings with institutional investors cannot be made public before deals are finalised, markets commentator Geetu Moza cited the example of disinvestment of government shareholding in public sector undertakings.

“Transparency is always good but there are meetings and negotiations before deals conclude. You cannot make all meetings public as that may lead to price rigging and manipulation,” she said.

(The writer is a senior journalist and public policy commentator. Views expressed are personal. His Twitter handle is @szarabi)