SEBI introduced new norms for timely disclosure of material events, stricter timeline, removal of permanent board seats, and improved corporate governance at listed entities. What exactly are the new changes introduced by SEBI? How will it impact companies? Read on to know more about the changes in this article. This topic is relevant from the GS paper III economy perspective of the UPSC syllabus.

SEBI’s New Changes to Boost Transparency in Disclosure

  • Timely Disclosure of Material Events:
    • A quantitative threshold will be introduced to determine the materiality of events.
    • Stricter timelines for disclosure of material events within 30 minutes for board meetings and 12 hours for events within the listed entity.
  • Removal of Permanent Board Seats: Individuals will not have permanent seats on the boards of listed companies.
  • Shareholders’ Approval for Special Rights:
    • Periodic shareholders’ approval will be required for any special right granted to a shareholder to address the perpetuity of special rights.
    • Shareholders’ nod will also be needed for any director serving on the board of a listed entity.
  • Streamlined Financial Results Submission: The timeline for submission of financial results by newly-listed entities will be streamlined to ensure no omission in submission.
  • Filling of Critical Positions: Listed entities will need to fill up the vacancy of Directors, Compliance Officer, Chief Executive Officer, and Chief Financial Officer within three months of the vacancy.
  • Improved Investor Grievance Redressal Mechanism:
    • Operationalization of online dispute resolution mechanism for investors across registered intermediaries and regulated entities.
    • The Online Dispute Resolution (ODR) system would be extended to MII (Market Infrastructure Intermediaries) administered conciliation and arbitration mechanism to registered intermediaries, regulated entities and their investors and clients.
  • Amendments to ICDR (Issue of Capital and Disclosure Requirements) Regulations:
    • Increase transparency and streamline certain issue processes.
    • Underwriting for the shortfall in demand or to cover subscription risk is to be disclosed in the offer document
    • Listed entities can announce a bonus issue of shares only after obtaining approval from the stock exchanges for listing and trading of all pre-bonus securities issued by it.

Possible Impact of the Changes:

  • Timely Disclosure of Material Events:
    • This may lead to greater transparency and efficiency in the securities market.
    • Can help prevent insider trading and manipulation of stock prices.
    • Companies may need to improve their internal systems and processes to ensure timely disclosure of material events.
  • Removal of Permanent Board Seats:
    • This may result in greater accountability of board members.
    • Companies may need to ensure they have a diverse and skilled board with members who can provide fresh perspectives.
  • Shareholders’ Approval for Special Rights:
    • May ensure that the interests of minority shareholders are protected.
    • This could result in better corporate governance by preventing the concentration of power in a few hands.
  • Streamlined Financial Results Submission:
    • This can lead to more accurate and timely financial reporting.
    • Could improve investor confidence and trust in listed entities.
  • Filling of Critical Positions:
    • May ensure that companies have competent and capable leadership in key positions.
    • Can prevent the delay or disruption of critical business functions due to vacant positions.
  • Improved Investor Grievance Redressal Mechanism:
    • May lead to the faster and more efficient resolution of disputes.
    • Can improve investor confidence and trust in the securities market.
  • Amendments to ICDR Regulations:
    • May increase transparency in the securities market.
    • Could improve the efficiency of issue processes and reduce the risk of fraud and manipulation.
Corporate Governance
  • Corporate Governance refers to the system and processes by which a company is directed and controlled. It encompasses the rules, policies, and procedures that guide the management and decision-making of a company. The main objectives of corporate governance are to:
    • Ensure transparency and accountability in the management of the company.
    • Safeguard the interests of all stakeholders, including shareholders, customers, employees, and the community.
    • Foster a culture of integrity, ethical behaviour, and compliance with laws and regulations.
    • Promote sustainable growth and long-term value creation for the company and its stakeholders.
  • Effective corporate governance requires a clear division of responsibilities between the board of directors, management, and shareholders, as well as the adoption of best practices in areas such as risk management, internal controls, financial reporting, and disclosure. Good corporate governance is essential for building trust, enhancing reputation, and attracting investment in a company.
More on corporate governance in the link.

Conclusion: The changes suggested by SEBI have the potential to improve corporate governance in India and strengthen the securities market. If implemented effectively, these changes may lead to greater transparency, accountability, and investor protection. This could ultimately contribute to the growth and development of the Indian economy.

SEBI’s New Norms to Boost Transparency :- Download PDF Here

Related Links
Front Running Major Stock Exchanges in India
Difference between Bombay Stock Exchange and National Stock Exchange Topic-Wise General Studies Paper – 3 Questions for UPSC Mains
Major Stock Exchanges UPSC 2023 Calendar

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