One of the concerns regarding the corporate disclosure regime is that while the primary market disclosure requirements (e.g. for a prospectus) are extensive and stringent, the secondary market disclosures by companies that are already listed on the stock exchanges are far from being elaborate. In order to bridge this gap, SEBI has been taking steps to enhance the disclosure requirements in the secondary markets.
Consistent with this approach, SEBI yesterday issued a circular to the stock exchanges requiring them to monitor corporate disclosures and also detailing the type of actions that the exchanges may initiate in case of non-compliance. The stock exchanges are now required to put in place an appropriate framework to monitor the accuracy of the disclosures, such that non-compliances are detected efficiently. Furthermore, the exchanges are required to establish appropriate mechanisms for handling investor complaints pertaining to inaccurate disclosures. These measures are initially applicable to the top 500 listed companies by market capitalization (as on March 31, 2013).
While the policy of enhancing secondary market disclosures is welcome, adequate steps would have to be taken by the stock exchanges to ensure effective implementation. The efficiency of the stock markets would depend upon the quantity and quality of information available in the markets, and to that extent the effort of SEBI and securities laws and regulations is to ensure the adequacy and appropriateness of the information so as to enable investors to make suitable investment decisions. From the investors’ perspective, the role of the stock exchanges acquires tremendous importance, given that the possibility of initiating private legal actions for non-disclosure or misstatements is ineffective in the Indian context, although that is likely to be altered in the new Companies Act, 2013 with the advent of the class action mechanism.