SEBI proposes enhanced disclosures for meetings with analyst, investors, etc.

– To curb information asymmetry and risk of divulging UPSI

 Shaifali Sharma | Vinod Kothari and Company

corplaw@vinodkothari.com

Introduction

Analyst and investor meets are one of the many ways of communicating and sharing information. Conducting periodical meetings, conferences, one-to-one meetings or con-calls with analysts or investors who wish to know more about the company, its historic performance, financial details, future prospects, etc. is a common practice for the listed entities.  The most common amongst these meetings are the earning calls which is called immediately following the release of the quarterly or annual financial results. Whereas, one-to-one meets or conference calls with selective investors/ analysts are also conducted in the normal course of business of the companies.

With the intent to rule out any information asymmetry in the market, the schedule, presentations or any information material used during such  analyst or institutional investor meetings are required to be disclosed by companies to stock exchange(s) and also hosted on the company’s website as required under the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 (‘Listing Regulations’).

Moreover, the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) requires fair disclosure of material events and therefore, provides principles for fair disclosure which includes

  • publication of transcripts or recordings of analyst/ investor meetings on company’s website; and
  • ensuring information shared with analysts and research personnel is not an unpublished price sensitive information (‘UPSI’).

The governing Regulations are discussed in this article.

However, looking at the practice of most of the listed companies, it has been observed that such disclosures are simply box ticking exercise where disclosure of mere PowerPoint slides of presentation are given instead of what is discussed in the meeting to give an example.

The concerns relating to disclosures in respect of analyst meets/ institutional investors meet/ conference calls were discussed by Primary Market Advisory Committee (‘PMAC’) constituted by SEBI in July, 2020 which then formulated a Sub-Group to recommend specific disclosure requirements to strengthen analyst/ investor meets. In this regard, a ‘Report on disclosures pertaining to analyst meets, investor meets and conference calls[1]’ (‘Report’) has been issued on November 20, 2020 seeking public comments on or before December 21, 2020. The Sub-Group has recommended to make the disclosure requirements optional for the initial one year and mandatory thereafter for all the listed companies. This article attempts to analyse the recommendations and their probable impact on the current regime under the Listing Regulations and PIT Regulations.

Further, on perusing the Report it has been observed that it explicitly distinguishes between scheduled meeting with the analysts and investors and unscheduled one-to-one calls with them. This article discusses the intention behind such distinction recognised by SEBI itself.

Current Regulatory Framework in India governing Analyst/ Institutional Meets

Listing Regulations

Regulation 46(2)(o) of the Listing Regulations requires the listed entity to disseminate the schedule of analyst or institutional investor meet and presentations made by the listed entity to analysts or institutional investors simultaneously with submitting the same to the stock exchange. The aforesaid Regulation is reproduced below:

“46(2) The listed entity shall disseminate the following information under a separate section on its website:

xxx

(o) schedule of analyst or institutional investor meet and presentations made by the listed entity to analysts or institutional investors simultaneously with submission to stock exchange;”

Further, Part A(A)(15) of Schedule III of the Listing Regulations read with SEBI circular[2] dated September 09, 2015, requires the listed entity to disclose the schedule of analyst or institutional investor meet and presentations on financial results made to such analysts or institutional investors without any application of the guidelines for materiality as specified u/r 30(4) of the Listing Regulations.

Furthermore, Part C(8)(e) of Schedule V of the Listing Regulations requires the listed entity to disclose the presentations made to the institutional investors or analysts in the section on the Corporate Governance of the Annual Report under the head ‘Means of Communication’.

Apart from above requirements, principles governing disclosures and obligations of listed entity shall be simultaneously conformed viz.  to provide adequate and timely information to recognised stock exchange(s) and investors, provide adequate and timely information to shareholders, to ensure timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance of the listed entity, etc. 

PIT Regulations

Pursuant to Regulation 8 of PIT Regulations, every listed company is required to formulate a Code of Fair Disclosure and Conduct for fair and timely disclosure of UPSI in compliance with the principles set out in Schedule A to the PIT Regulations. The principles of fair disclosure w.r.t analyst meet is as follows

  • to ensure that information shared with analysts and research personnel is not UPSI; and
  • to develop best practices to make transcripts or records of proceedings of meetings with analysts and other investor relations conferences on the official website to ensure official confirmation and documentation of disclosures made.

Regulatory Regime in other Countries

Country Name Disclosure Requirement

 

USA
  • The Regulation FD[3] (for “Fair Disclosure”) issued by the Securities and Exchange Commission provides that an issuer or his official while entering into a private discussion with an analyst who is seeking guidance about earnings estimates, shall not communicate any material non-public information (MNPI).
  • It does not prohibit from communicating material non-public information to an analyst, the company may do so after making public disclosure of such information.
  • No practice of recording or transcribing the investor meetings
UK
  • Market Abuse Regulations[4] prevents companies from making selective disclosure of MNPI.  If the company do so, an immediate announcement would be required but it would still be a breach of the regulations
  • No practice of recording or transcribing these investor meetings
Singapore
  • Rule 703(4)[5] of the Singapore Exchange Listing Rules requires the issuer to observe the Corporate Disclosure Policy[6] as provided under Appendix 7.1. of the Rules. Para 23 under PART VIII of the Policy recommends the issuer to observe an “open door” policy in dealing with analysts, journalists, stockholders and others.
  • Issuer is required to abstain from disseminating material information which has not been disclosed to the public before. However, if such material information is inadvertently disclosed at meetings with analysts or others, it must be publicly disseminated as promptly as possible by the means described in Part VIII.
Canada
  • The Canadian Securities Exchange specifies prescribes Policy on ‘Timely Disclosures’[7] to be complied by the issuer. Para 7.1 provides that disclosure of information shall not be on selective basis. The policy classifies private meetings with analysts, brokers and investors as a good corporate governance activity. However, the policy provides that no material unpublished information is disseminated in such meetings.

Extant gaps in disclosure requirements

Information Asymmetry

As discussed above, the Listing Regulations require the listed entities to disclose the schedules and presentations for analyst or institutional investor meetings on its website and to the stock exchange(s) with 24 hours of the event taking place. However, except for few top companies, majority of the listed companies treat this as a mere formality. They disclose only the occurrence of analyst/ investor meets and circumvent disclosure of significant details of the said event.

As per the Report, it has been observed that the reports shared by the listed entities have information that does not have its source from quarterly results or investor presentation and thereby lead to selective sharing of information. Therefore, it is seen that there exists information asymmetry due to following the Regulations in letter and not in spirit.

Selective disclosure and Risk of divulging UPSI

Selective disclosure occurs when a company releases UPSI about the company to an individual or selective group of persons (e.g., analysts or institutional investors) before disclosing the information to the general public. It creates an adverse impact on market integrity similar to that of insider trading. Selective disclosure lead to asymmetry information.

For example, analyst/ investors during a one-to-one meet are provided with such price sensitive information which may not be disclosed in presentation or the financial results and is not available in public domain.

Therefore, issues concerning selective sharing of information, disclosure of incomplete information, inconsistency in the disclosures made by different listed companies have made it essential for SEBI to review the current regulatory requirements and further strengthen the disclosure regime.

Conflicting views of Kotak Committee on Investor/ Analyst meets

The Committee on Corporate Governance constituted under the Chairmanship of Mr. Uday Kotak Committee (‘Kotak Committee’) by SEBI issued its ‘Report on Corporate Governance[8]’ in October, 2017 wherein it took a contrary view and stated that disclosure of schedule of investor/ analyst meetings does not serve any practical purpose and therefore may not be required. Relevant extract provided below:

“The Committee was of the view that the disclosure of schedules of analyst/institutional investor meetings does not serve any practical purpose, and there have been instances of its misuse. Hence, the Committee recommended that the disclosure of schedules of analyst/institutional investor meetings may not be required. To clarify, the information to be shared at such meetings has to be strictly in compliance with the SEBI PIT Regulations.”

On the other hand, the present Report has considered institutional investors meet or conference call with analysts/ shareholders as a material event and emphasis has been placed on strengthening the disclosure framework. It is significant to note that while the Kotak Committee was of the view that putting up the schedule for investors meeting have the potential of being misused, the Sub-Group constituted by the PMAC holds a completely contrary view and has not recommended to do away with the said practice.

The Recommendations:  Enhanced disclosures w.r.t analyst / investor meets/ conference calls

New disclosure requirements pertaining to post-earnings conference calls/quarterly calls

Listed companies generally organise analyst / investor meetings or conference calls after the release of quarterly financial results. To curb any information asymmetry among different class of stakeholders, the following recommendations are proposed:

  • audio/video recordings
    • host on the website and share with the stock exchange(s)
    • immediately after the earnings call/ con-call/ analysts meeting before the next trading day or within 24 hours from the occurrence of event or information, whichever is earlier;
  • written transcripts
    • host on the website of the listed entity and respective stock exchanges within 5 working days after the event;
  • make available audio/video recordings and the written transcripts on the website
    • for a period of atleast 8 years in addition to the details disseminated on respective stock exchanges.

The idea is to immediately disclose any UPSI shared at such conference calls. Some of the top listed companies like Tata Steel[9], Reliance Industries[10], Infosys[11], Pricol Ltd[12], Power Finance Corporation Ltd[13], have already adopted the above practices and upload the audio/video recordings, transcripts of analysts / investor conference calls on their respective websites. The recommendations will now require the other listed companies to put in place an effective disclosure mechanism in this regard.

Discretion of companies to limit attendees of conference calls

Unlike in US, Indian listed companies generally restrict the conference calls to their respective analysts / investors only to avoid any unnecessary disruption of call, presence of competitors, etc.

However, genuine institutional investor or analyst may get excluded from participating in the meeting and thus, Sub-Group suggested that companies should make the provision of inclusion of certain individuals based on their request and on verification of their credentials.

Accordingly, Sub-Group has recommended to leave the discretion with the listed companies for deciding the participants for such meetings.

One-to-one meetings – Selective or effective disclosures?

Listed companies in their course of business are often seen conducting one-to-one meetings/ con-calls with investors / analysts (‘private meets’). Such private discussions are more risky due to the following:

  • unscheduled and unplanned;
  • company officials not prepared;
  • no presentation/ information statement for discussion;
  • greater risk of disclosing UPSI

Even if a company wishes to make public the proceeding of such meeting/ call, the investor may not agree to share private call records in public domain.

However, by disclosing one-to-one affairs, chances of information asymmetry will reduce. Also, other investors, particularly the minority investors, who are generally not a part of such meets may be benefitted from effective price discovery. Besides investors, regulatory authorities and stock exchanges will also be able to track such meets for any future references.

In view of the above, Sub-Group has made following recommendations:

  • listed companies to provide number of one-to-one meetings with select investors as part of corporate governance report submitted by them to stock exchanges on a quarterly basis;
  • an affirmation that no UPSI was shared by any official of the company in such meetings shall also be provided along with the corporate governance report;
  • company shall maintain a record of all such one-to-one meetings. The data should be preserved for a period of atleast 8 years.

Unlike in case of post-earning calls, it seems recording and disclosure of private meets is not required. It is always better to look before you leap, hence companies must consider recording such private meets (written or audio) and making it public to avert possibility of selective disclosure and leak of material information.

Further, in addition to the affirmation by official of company involved, a confirmation from the concerned party (investor/ analyst) shall also be obtained confirming that no material public information was shared with the concerned analyst during such meeting, and that the information shared in the meeting was only clarification of facts/information already available in public domain.

Concluding Remarks

After the recommendations of Kotak Committee in the year 2017 to discard the requirements of disclosing the schedule of analyst / institutional investor, a new approach of SEBI to enhance transparency and strength disclosure framework of analyst/ investor meets is evident from the recommendations of the Sub-Group.

An effective disclosure mechanism will be required to be put in place by companies for adequate and timely disclosures. A measure of ‘silent or quiet period’ may be adopted where companies for a specified period (generally prior to release of financial results) refrain from interaction with the analyst/ investor/ media in order to avoid inadvertent disclosures of UPSI on selective basis. To conclude, the recommendations seems to promote a culture of corporate governance encouraging companies to follow the compliance in spirit of law.

 

 Other reading materials on the similar topic:

  1. ‘A date to remember: Ad-hoc Analyst/Investor meets become a passé affair’ can be viewed here
  2. Our other articles on various topics can be read at: http://vinodkothari.com/

Our Youtube Channel: https://www.youtube.com/channel/UCgzB-ZviIMcuA_1uv6jATbg

 

 

[1] https://www.sebi.gov.in/reports-and-statistics/reports/nov-2020/report-on-disclosures-pertaining-to-analyst-meets-investor-meets-and-conference-calls_48208.html

[2] https://www.sebi.gov.in/legal/circulars/sep-2015/continuous-disclosure-requirements-for-listed-entities-regulation-30-of-securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015_30634.html

[3] https://www.sec.gov/rules/final/33-7881.htm

[4] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014R0596

[5] http://rulebook.sgx.com/rulebook/703-0

[6] http://rulebook.sgx.com/rulebook/appendix-71-corporate-disclosure-policy

[7]https://webfiles.thecse.com/resource/CSE%20Policy%205%20%E2%80%93%20Timely%20Disclosure,%20Trading%20Halts%20and%20Posting%20Requirements.pdf

[8] https://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html

[9] https://www.tatasteel.com/investors/financial-performance/analyst-call-recording/

[10] https://www.ril.com/InvestorRelations/FinancialReporting.aspx

[11] https://www.infosys.com/investors/news-events/analyst-meet/2020/india/main.html

[12] https://www.pricol.com/investor-call-transcripts.aspx

[13] https://www.pfcindia.com/Home/VS/109

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