Mandatory Verification of Market rumours

Introduction to the Amendment

Under the LODR amendment, listed entities are now required to establish a robust mechanism for rumours verification and timely dissemination of accurate information. It is essential to implement effective communication channels to promptly address rumours and counter any potential misinformation that may affect the market’s stability.

Reg 30(11) – Listing Regulations is a regulation that talks about verifying the market rumours by the listed entity. However, to ensure that the listed entities adhere to such information being spread in the market via media or other public forums, the latest amendment in SEBI regulations now makes it compulsory for verifying such market rumours. Considering the fragmentation and cryptic reach of electronic and social media presently, rumours may be spread in 360 degrees, and it practically stands challenging for a listed entity to respond.

Background

The LODR amendment pertaining to rumour verification stems from the recognition of the significant influence rumours can have on market sentiments and the potential for misinformation to impact investors and stakeholders. The Securities and Exchange Board of India (SEBI) has taken proactive measures to address this concern and reinforce the trust and integrity of the Indian financial markets.

The existing provision before the amendment is stated as follows:

As per Regulation 30(11) of the Securities Exchange and Board of India (LODR) Regulations, 2015 the listed entity may on its own initiative also, confirm or deny any reported event or information to stock exchanges(s).

After Amendment the same is as follows:

After sub-regulation 11 the following provisos and Explanations shall be inserted namely:

"Provided that top 100 listed entities (with effect from October 01, 2023) and thereafter top 250 listed entities (with effect from April 01, 2024) shall confirm, deny or clarify any reported event or information in the mainstream media which is not general in nature and which indicates the rumours of an impending specific material event or information in terms of the provisions of this regulation are circulation amongst the investing public, as soon as reasonably possible but not later than twenty hours from the reporting event or information.

Provided that if the listed entity confirms the reported event or information, it shall also provide the current stage of such reported event or information.

Explanation: The top 100 and 250 listed entities shall be determined on the basis of market capitalization as at the end of the immediately preceding financial year”

ANALYSIS

Applicability

• On top 100 listed entities w.e.f. 1st October 2023
• On top 250 listed entities w.e.f 1st April 2024

Actionable expected from listed entity: Confirm, Deny or Clarify Rumour

Source of Rumour: Mainstream Media

Mainstream Media

This definition has been inserted vide the Amendment Regulations as: “mainstream media” shall include print or electronic mode of the following:

1. Newspapers registered with the Registrar of Newspapers for India;
2. News channels permitted by Ministry of Information and Broadcasting under Government of India;
3. Content published by the publisher of news and current affairs content as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021; and
4. Newspapers or news channels or news and current affairs content similarly registered or permitted or regulated, as the case may be, in jurisdictions outside India;”

Nature of Information

Rumours of an impending specific material event or information in terms of the provisions of Reg 30

Approach of a listed entity while responding to Rumours

The sources of information from mainstream media being perpetual and limitless, it may not be ideally possible for a listed entity to keep an eye on all market rumours and respond regarding the same. However, it is crucial to note that disclosures are mandated for information that are material in terms of Reg 30 of listing regulations.

Therefore, an optimal approach ideally would be to keep an eye for an unusual price movement in the scrips of listed entity that may send signs regarding presence of material information in public selectively. Such rumours may thereafter be traced, and the same is found to be material in terms of Reg 30 read with Schedule III, should be adequately responded upon by the listed entity.

Impact of the Amendment

The amendment is expected to have a positive impact on the financial ecosystem in several ways:

• Enhanced Transparency: By mandating rumour verification, the amendment reinforces transparency in the functioning of listed entities and helps maintain a level playing field for all market participants.
• Investor Protection: Investors can make well-informed decisions based on accurate and verified information, minimizing the risk of acting upon rumours that could lead to unnecessary volatility.
• Market Stability: By promptly addressing and debunking rumours, the amendment aims to stabilize the market and prevent undue speculation, which can have detrimental effects on stock prices and investor confidence.

Actionable Steps for Listed Entities

Listed entities should take the following actionable steps to ensure compliance with the rumour verification requirement:

• Establish a Rumour Verification Mechanism: Develop a dedicated system or process to swiftly verify the authenticity of rumours or potential misinformation. This can involve setting up a specialized team or utilizing existing communication channels to address such concerns.
• Timely Disclosure: Ensure prompt dissemination of verified information through appropriate communication channels, such as stock exchanges, company websites, press releases, and investor forums. This will help counteract rumours effectively and maintain market integrity.
• Regular Internal Communication: Foster a culture of open and transparent communication within the organization to identify and address potential rumours at an early stage. Encourage employees to report any rumours they come across and provide a platform for them to seek clarification.
• Periodic Evaluation: Continuously assess the effectiveness of the rumour verification mechanism and refine it based on emerging market trends and regulatory developments. Regularly review internal processes to ensure compliance with LODR requirements.

By adhering to these actionable steps, listed entities can effectively navigate the LODR amendment and contribute to a more reliable and transparent financial environment.