Sebi set to tighten disclosure norms for unlisted cos

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The Securities and Exchange Board of India (Sebi) is looking to bring in disclosure guidelines for unlisted companies, which are part of a business conglomerate. Listed entities are subject to comprehensive disclosure norms, but the same levels of disclosure is not applicable for unlisted companies. In its annual report for 2022-23, Sebi said “There is a need to identify, monitor and manage risks introduced into the securities market ecosystem by unlisted companies in a conglomerate with a complex set of listed and unlisted associates.” “Disclosure of details of cross-holding and material financial transactions within the conglomerate are also some of the matters that Sebi would examine to be disclosed on an annual basis,” the annual report noted.

Sebi also plans to facilitate transparency around a conglomerate by increasing group-level reporting.

In addition, the regulator is planning to review the eligibility criteria for introduction of stocks in the derivatives segment. Derivatives contracts on scrips can be traded on recognised stock exchanges only if the underlying securities satisfy certain criteria. The last review of the eligibility criteria for introduction of stocks in derivatives was done in 2018.

In other steps to strengthen volatility management and minimise information asymmetry for scrips and contracts in equity derivatives segment, Sebi is in the process of strengthening the existing framework of price band for these scrips and their derivatives contracts. The new framework would limit the impact of a possible price risk arising out of sudden extreme market volatility, fat finger error or issues with systems of a trading member. Sebi is also planning to review the pricing mechanism for delisting of shares. In particular, a review of the reverse book-building process and exploring other alternatives to determine exit price in case of voluntary delisting would be undertaken.