(This post has been authored by, and is uploaded on behalf of, Professor Umakanth)
As we have previously observed on this Blog, there is a considerable divergence between the requirements of disclosure in the primary markets and those in the secondary markets. While SEBI has progressively expanded the requirements of primary market disclosures through the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (the ICDR Regulations), the disclosure norms are far less onerous once a company is listed on the stock exchange. While episodic disclosures are required to be made by companies upon the occurrence of material events that affect the price of their securities and periodic disclosures are to be made such as the announcement of quarterly results and decisions at board meetings, these requirements are considerably lighter than those prescribed for primary market transactions. Moreover, the regulations and liability regime for misstatements in secondary market disclosures are far from clear.
Due to this disparity, there have been calls for the introduction of an integrated disclosure regime in India through standardizing and streamlining the corporate disclosures by integrating initial disclosures made under a primary market offering document with continuous disclosure requirements thereafter. Although SEBI has considered this issue based on the recommendations of a Sub-Committee appointed by it for the purpose, much progress had not been made towards the integration of the primary and secondary market disclosures in India. The latest step towards improving the enforcement of secondary market disclosures is by empowering the stock exchanges to take action against errant issuers. The impact of this measure is yet to be known, as it is a fairly recent one.
In this background, it is heartening to note SEBI latest discussion paper issued yesterday that requires companies listed on the stock exchanges to provide an annual information memorandum where all secondary market disclosures are to be available in a single source on a consolidated basis. This will overcome the current fragmented and episodic reporting that is witnessed in the markets. The discussion paper contains details about the rationale for the annual information memorandum and also an analysis of the experience in other countries, particularly the US.
Currently, the proposal is only in the form of a discussion paper, with comments due by March 9, 2014. It is hoped that these measures will be operationalized soon so as to bridge the gap between primary market and secondary market disclosures, which has been long overdue in the Indian context.