SEBI eliminates one-to-one analyst meets from the purview of LODR

-Recommendations of sub-group dropped under the LODR Amendment

By CS Aisha Begum Ansari, Assistant Manager, Vinod Kothari & Company

Background

Information symmetry is extremely important in a listed company since it helps in effective price discovery and builds the faith of the investors. Analyst and investor meets are one of the many ways used by the companies to disseminate information. The companies usually conduct analyst or investor meets after the disclosure of financial results to answer the questions relating to financial performance, future prospects, etc. based on generally available information without disclosing any unpublished price sensitive information (‘UPSI’). Such meets generally include conference calls or meeting with group of investors or group of analysts as per the prefixed schedule. Further, the same also includes one-to-one meet or calls with investors or analysts, which may either be prefixed or in the nature of walk-in.

While, SEBI mandates provisions under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) and SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) to curb as well as regulate such leak of UPSI; one of the recent changes under the Listing Regulations vide SEBI Listing Regulations (Second Amendment) Regulations, 2021[1] (‘LODR Amendment’) issued on 7^th May, 2021 seems to have completely excluded one-to-one meet from the regulatory ambit prescribing disclosure requirements.

This article discusses the regulatory requirement in relation to investor meet, phases of amendment, present requirement and international practice.

Compliance requirements under SEBI Regulations

Erstwhile Listing Agreement

Clause 49 of the Listing Agreement[2] which specified the reporting requirements, obligated the companies to disclose on its website or intimate the stock exchange the presentations made by it to the analysts. Also, the companies were required to disclose in its Report on Corporate Governance, presentations made to institutional investors or the analysts as a means of communication to shareholders.

Listing Regulations (prior to amendment)

The Listing Regulations mandated listed entities to disclose the schedule of analyst or investor meets and presentations to such analysts or investors –

On the website of the listed entity [Regulation 46(2)(o) of Listing Regulations]
On the website of the stock exchange where its securities are listed (Clause 15 of Para A, Part A of Schedule III of Listing Regulations).
Means of communication in the form of presentations made to institutional investors or analyst in the annual corporate governance report. (Para C(8)(e) of Schedule V to Listing Regulations).

Erstwhile PIT Regulations (1992)

The 1992 regulations prescribed elaborate requirement in relation to analyst meets. Listed companies were required to follow the following guidelines while dealing with analysts and institutional investors:—

Only Public information to be provided – Listed companies were required to provide only public information to the analyst/research persons/large investors like institutions. Alternatively, the information given to the analyst were required to be simultaneously made public at the earliest.
Recording of discussion – In order to avoid misquoting or misrepresentation, it was suggested that at least two company representative to be present at meetings with analysts, brokers or institutional investors and discussion should preferably be recorded.

Handling of unanticipated questions – A listed company were required to be careful when dealing with analysts’ questions that raise issues outside the intended scope of discussion. It was suggested that unanticipated questions could be taken on notice and a considered response could be given later. If the answer included price sensitive information, a public announcement was required to be made before responding.
Simultaneous release of Information – When a company organized meetings with analysts, the company was required to make a press release or post relevant information on its website after every such meet. The company could also consider live webcasting of analyst meets.

PIT Regulations

PIT Regulations, presently, mandate listed entities 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. Further, the listed entity needs to ensure that information shared with analysts and research personnel is not UPSI.

Discussion in working group/ committee reports

Report submitted by the Committee on Corporate Governance[3]

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. However, the information to be shared at such meetings has to be strictly in compliance with the SEBI PIT Regulations.

Report on disclosures pertaining to analyst/ investors meets[4]

The issue of information asymmetry between various classes of investors arising out of limited disclosures in respect of analyst meets/ institutional investors meet/ conference calls was discussed by Primary Markets Advisory Committee (PMAC) in the meeting in July, 2020. SEBI, based on the recommendation of PMAC, had formed sub-group which issued the ‘Report on disclosures pertaining to analyst meets, investor meets and conference calls’ (‘Report’) on November 20, 2020.

The Committee deliberated on best practice followed by listed entities in India, regulatory regime in developed countries and acknowledged the fact that existing regulations are not followed in letter and spirit by majority of listed companies thereby causing information asymmetry.

The Report explicitly distinguished between group analysts or investors meet and one-to-one in terms of the regulatory compliance. The Report recommended disclosure of transcripts and recordings of proceedings of group investors meet on the website of the company and to the stock exchange within a prescribed time frame whereas for one-to-one meetings, it recommended disclosing the number of such meetings in the quarterly compliance report on corporate governance along with a confirmation that no UPSI was shared with them.

The committee provided the rationale that the fundamental reason for analysts to seek meetings with the listed entity was to check their hypothesis that they have developed, based on controls and processes that have been built to comply with the public disclosures and complying with regulations relating to handling of private information and that premature public disclosure of these questions may lead to a regime of ‘’mandatory dissemination of proprietary information’’.

It is also important to note that the sub-group in its Report discussed that the content of the discussions for one-to-one meets, should not be intimated to the stock exchange due to following demerits:

Invasion of privacy of the institutional investors;
Allow third parties not a part of the meet to take speculative positions for trading decisions; and
Lead to overload of information to retain investors

Based on the sub-group’s discussion, the following recommendations were made:

Provide number of one-to-one meet as part of corporate governance report on a quarterly basis while submitting to the stock exchange;
The same needs to carry an affirmation that no UPSI was shared by any official of the company in such meetings; and
Company to maintain a record of all one-to-one meetings covering the name/names of the investor who were met, the name of the fund that he/ she represents, name of the brokerage firm which fixed the meeting (if any), the location, date and time of the meeting and a reference to the presentation made and preserve the same for a period of at least eight years.

Discussion in SEBI Board meeting of March 25, 2021[5]

The agenda provides details of recommendation made in relation to group analyst meet, however, does not provide any rationale/ discussion with respect to one-to-one meeting or reason for excluding the requirement from Listing Regulations altogether.

Anomaly in the LODR Amendment

Regulation 46(2)(o) and Clause 15(a) of Para A, Part A of Schedule III of Listing Regulations defines the term ‘meet’ as ‘group meetings or group conference calls’ for the purpose of disclosure of schedule of analyst/ investor meet and presentations made by the company to them.

Further, regulation 46(2)(oa) and Clause 15(b) of Para A, Part A of Schedule III provides for manner of disclosure of audio/ video recordings and transcripts of post earning calls or quarterly calls on the website of the company and to the stock exchange respectively. The said sub-clause has no reference of the term ‘meet’. The said provisions are reproduced below:

Regulation 46(2)(oa):

“(oa) Audio or video recordings and transcripts of post earnings/quarterly calls, by whatever name called, conducted physically or through digital means, simultaneously with submission to the recognized stock exchange(s), in the following manner:

the presentation and the audio/video recordings shall be promptly made available on the website and in any case, before the next trading day or within twenty-four hours from the conclusion of such calls, whichever is earlier;
the transcripts of such calls shall be made available on the website within five working days of the conclusion of such calls:

Provided that—

The information under sub-clause (i) shall be hosted on the website of the listed entity for a minimum period of five years and thereafter as per the archival policy of the listed entity, as disclosed on its website.
The information under sub-clause (ii) shall be hosted on the website of the listed entity and preserved in accordance with clause (a) of regulation 9.

The requirement for disclosure(s) of audio/video recordings and transcript shall be voluntary with effect from April 01, 2021 and mandatory with effect from April 01, 2022.”

Clause 15(b) of Para A, Part A of Schedule III

“(b) Audio or video recordings and transcripts of post earnings/quarterly calls, by whatever name called, conducted physically or through digital means, simultaneously with submission to the recognized stock exchange(s), in the following manner:

the presentation and the audio/video recordings shall be promptly made available on the website and in any case, before the next trading day or within twenty-four hours from the conclusion of such calls, whichever is earlier;
the transcripts of such calls shall be made available on the website within five working days of the conclusion of such calls:

The requirement for disclosure(s) of audio/video recordings and transcript shall be voluntary with effect from April 01, 2021 and mandatory with effect from April 01, 2022.”

Since, the term ‘meet’ is not mentioned in the above provisions, it leads to an interpretation that in case of post earning calls or quarterly calls, irrespective of the fact whether such meeting is with the group of investors or one-to-one meeting, audio/ video recordings and transcripts will be required to be submitted to the stock exchange.

Regulatory regime in other countries

1. United States of America

Regulation Fair Disclosure[6] (referred as ‘Regulation FD’) prohibits companies from selectively disclosing material non-public information (referred as ‘MNPI’) to analysts, institutional investors, and others without concurrently making widespread public disclosure.

Response to question 101.11 of the FAQs on Regulation FD[7] allows directors of the company to speak privately with a shareholder or group of shareholders by implementing policies and procedures to help avoid insider trading. Also, where a shareholder expressly agrees, through confidentiality agreement, to maintain confidentiality of MNPI, a private communication between the director and a shareholder does not violate Regulation FD norms.

2. Canada

Part V of the National Policy on Disclosure Standards[8] provides guidelines with respect to private briefings with analysts/ institutional investors. The Policy does not prohibit one-to-one discussions with analysts but identifies that the potential of selective disclosure of material non-public information is fraught with difficulties. It emphasizes on timely public disclosure of material information and entering into confidentiality agreements with the analysts.

3. United Kingdom

Market Abuse Regulation (“MAR”)[9] prevents selective disclosure of MNPI. MAR requires that the companies must not disclose MNPI selectively at the investor meetings. If they do, an immediate announcement would be required but it would still be a breach of the regulations.

4. Singapore

Rule 703(4) of the Singapore Exchange Listing Rules[10] requires the issuer to observe the Corporate Disclosure Policy as provided under Appendix 7.1. of Rule[11]. 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.

Conclusion

One-to-one meets carry a significant amount of risk with it for being a source / device for leak of UPSI especially where the same are not explicitly regulated. The intent behind recording and disclosing the same is to safeguard the company officials from any potential charge of breach of PIT Regulations. One will have to wait and watch if the relaxation results in any adverse implications. Further, SEBI will have to clarify on the ambiguity relating to disclosure requirements of one-to-one analysts meet w.e.f. post earning calls or quarterly calls if the intent is to restrict only to ‘meet’ as defined in the respective clauses.

[1] https://egazette.nic.in/WriteReadData/2021/226859.pdf

[2]https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/1293168356651.pdf#page=7&zoom=page-width,-16,792

[3] https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/oct-2017/1509102194616.pdf#page=1&zoom=page-width,638,870

[4] https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/nov-2020/1605853267317.pdf#page=1&zoom=page-width,-16,792

[5] https://www.sebi.gov.in/sebi_data/meetingfiles/apr-2021/1619067296590_1.pdf

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

[7] https://www.sec.gov/divisions/corpfin/guidance/regfd-interp.htm

[8] https://www.osc.ca/sites/default/files/pdfs/irps/pol_20020712_51-201.pdf

[9] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0596&from=EN

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

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

Our article titled SEBI proposes enhanced disclosures for meetings with analyst, investors, etc. can be accessed through following link: