Archive for category: LODR

– This version: 21st May, 2024

Team Corplaw | corplaw@vinodkothari.com

Regulatory instruments and standards on rumour response:

• Reg 30(11) as amended
• Framework on Material Price Movement (in Equity Cash Markets) with respect to Rumour Verification by Listed Entities by stock exchanges 
• Framework for considering unaffected price for transactions upon confirmation of market rumour
• Industry Standards Note on verification of market rumours under Regulation 30(11) of LODR Regulations
• SEBI Circular granting regulatory recognition to ISF standards

What is the change? And applicable from when?

• Reg 30 (11) & (11A) of Listing Regulations dealing with rumour verification. There was a work in progress at SEBI on making the regulation more certain and easier-to-implement. Changes were made in Re. 30 (11) requiring top 100/top 250 companies to mandatorily respond to market rumours, but there were several issues in implementation. SEBI Consultation Paper w.r.t. Verification of Market Rumours  (‘CP’)  based on the recommendations of the Industry Standards Forum (ISF) and subsequently, SEBI Board decision taken in the meeting held on March 15, 2024 resulted into these changes.
• Original implementation dates were October 1, 2023 and thereafter, extended twice to February 1, 2024/ August 1, 2024 and thereafter to June 1, 2024/ December 1, 2024 for top 100/ top 250 companies¹. It is now confirmed that the implementation dates remain the same. 
• Further, SEBI vide Circular dated May 21, 2024 has given recognition to the Industry Standards Forum (‘ISF’)² that released the Industry Standards Note (ISN) on rumour verification in order to facilitate uniform approach and set out an SOP for compliance with rumour verification requirement. The compliance with Industry Standards are mandatory for the listed entities [SEBI Circular dated 21 May, 2024]. The ISN inter alia covers following aspects:
  • Delineation of “mainstream media” (as requirement to respond will only be applicable to rumours reported in specific media sources (see below) ;
  • Guidance on rumour responses through illustrative scenarios pertaining to potential M&A transactions, ;
  • Guiding principles through some illustrative non M&A transaction scenarios, such as whistleblower complaints, internal investigations, potential change in KMPs, ill health of MD/ CEO etc.

1. Who will be impacted, and from when?

• Top 100/top 250 companies based on market capitalisation.
  • Presently as per March 31, 2024
  • Effective from December 31, 2024 based on the average market capitalisation from July 1 to December 31 of that calendar year
• Top 100 companies – 1st June 2024
• Top 250 companies – 1st Dec 2024
• For the rest of the companies, the framework is still voluntary, but logically, the reference point being “material price movement” may be extended to these companies too.

2. What will affected companies be required to do?

• If:
  • There is a material price movement (MPM)  
  • There is a rumour in mainstream media
  • About some definitive event or information
  • Which is “impending”, that is, about to happen or waiting to be disclosed by the Company.
• The company shall respond:
  • Either confirm that rumour
  • Or deny it
  • Or make a statement that the rumoured event has not become disclosable at the present time
  • Or remain silent, if the rumour does not qualify for a response in terms of the ISN
  • And for either confirmation or denial, if the company needs further information from a promoter, director, KMP, or SMP (that is, the rumoured information pertains to them), the company shall promptly seek the same, and the counterparty shall promptly, accurately and adequately respond to the same.
  • The company shall do the confirmation or denial or provide a clarification within 24 hours from the trigger of the MPM
• The company need not respond:
  • If the rumoured event or information is not “specific”, or does not otherwise qualify for a response
  • If the rumoured event/information pertains to the pre-intimated items in a  notice of Board meeting u/r 29 (1) of Listing Regulations .
    • Appropriate disclosure to be made after conclusion of the Board meeting.
    • However, if the rumour goes beyond the information in the pre-intimation, and otherwise qualifies for response, the company will respond. 

3. Basic attributes of a rumour requiring response:
   1. Should be relating to the Company and not generally about sector, industry, geography, etc
   2. Should be specific, that is, should give some facts/information likely to influence the decision of investors, or should have quoted a source which can be relied for the information in question
   3. Should be relating to an event/development which is impending, that is, imminent, at a stage of development
   4. Should not be an elaboration of something that has already been disclosed by the Company, unless new material facts or information not disclosed by the company are contained
   5. Should be contained in “mainstream media”
   6. Should have caused an MPM
   7. There should be a reasonable nexus between the rumour and the MPM, so as to lead to a conclusion that the MPM has been triggered by the rumour

4. What is the trigger point of the MPM (MPM Trigger)?

• Since MPM (see discussion below) is based on price movements during a day, the trigger point may happen at any time during trading hours.

5. What is MPM?

• As per the Framework  provided by NSE, the parameters for MPM are as under:
  • Cut off percentages [that is, 5, 4 or 3%, +/- relevant index variation in the same direction as the MPM – see below] for price variation, or the price band being hit ;
  • Relevant index changes: Nifty 50 in case of NSE listed entity/ Sensex in case of BSE listed entity/ both in case listed on both, to be seen at the start of the trading day i.e. at 9.30 a.m. That is, change in the index is frozen at the start of the trading day.
  • ISN intends to classify rumoured news into “positive news” or “negative news”, and correlate the price change with the same (that is, require response only where prices have gone up with a positive news and gone down with a negative news). However, for many news pieces, the ascertainment of whether the news is positive or negative will not be possible. Therefore, the only basis for determination of the direction of the news is the direction of the prices. For instance, disposal of a division may be negative news, if the sustainable income from the same will be lost, but may be taken as positive if the rate of return from the outgoing division was suboptimal. 
  • However, the reflection of the movement in the Index (provided is equal to or more than 1%) needs to be done on the MPM cut off percentages only if the Index movement is in the same direction as the MPM.
  • As for the stock, the price movements are taken at any time during the trading day..
  • Percentage variation in share price and the benchmark index movement will be calculated wrt the closing price of the immediately preceding trading day.

• Assuming there is an MPM in my scrip at 12.30, which subsides later in the day, shall we still say the MPM has occurred? Answer seems to be yes. In case of intraday price movement (i.e. after 9:30 am), only the price range-based price variation in the scrip to be considered, irrespective of the Index movement. 
• While there may be price movement due to a combination of various factors such as rumour, announcements or other events (other than the rumoured event), then MPM is deemed attributed \to the rumour.

6. Where should one look for rumour? 

• ISN has restricted the scope of “mainstream media” to the following:
  • English national dailies satisfying the following conditions:
    •  Top English dailies with a circulation of 1 lakh or more copies as per RNI data; currently 14 newspapers along with the editions have been listed by ISN.
  • Business/ Financial News Dailies: Economic Times, Business Standard, Live Mint, Financial Express and Hindu Business Line. 
  • Regional Dailies: the top 2 (two) regional dailies having the highest circulation, for each of the 22 (twenty two) official languages of India, subject to meeting the RNI Circulation Threshold, as per the list of regional dailies given in ISN. 
  • Digital versions of the newspapers covered above 
  • Digital/ online news sources: specified news sources meeting the following Business News Parameters: 

• Specified sources are – Bloomberg, BQ Prime, Money Control, Business Today, Business World, Reuters, Reuters India, and Press Trust India. 

• International media :
  • Top business/ finance dailies (from top 5 jurisdictions from where foreign portfolio investments are concentrated) comprise –
    • Wall Street Journal and Financial Times for USA; 
    • Business Times and Financial Times for Singapore; and 
    • Financial Times for UK;
  • For other jurisdictions where the Company has “material operations” (in our view, the Policy may define what is “material” operation), the Board is required to identify list of English business/ financial news sources from such jurisdictions. List to be published in the materiality policy.
• Business News Channels: satisfying the following conditions:
  • English news channels – CNBC TV-18, ET Now and NDTV Profit
  • Other Business news channels – CNBC Awaaz, ET Swadesh, Zee Business and CNBC Bazaar

• Exclusions: News aggregators  (for e.g. google news, inshorts, daily hunt etc.) and social media platforms (for e.g. whatsapp, twitter, facebook, instagram etc.) will not get covered under mainstream media.
• Inclusions: Social media handles of news sources identified above, will be included. However, quotes/ re-tweets/ re-posts made from such social media handles will not be included.

7. What are the actionable for companies w.r.t. Mainstream media?

• Companies to put in place appropriate technology solutions, engage external media agencies;
  • For identifying and tracking the digital news sources set out above.
• Implement internal systems for prompt reporting, coordination and communication between investor relations, corporate communications and compliance teams.
• Companies are required to respond only once and not when the same or similar rumour is published in another news source.
• Question – are companies expected to track all that is written about the company, in all the “mainstream media”, at all times? Answer should be No. However, the company may have to keep sources/media agencies on the standby, that is, to trigger them into action when there is MPM.

8. What is the guidance for action? 

• Companies have to be alert on MPM. MPM is assessed on a daily basis – therefore, companies may have appropriate technology tools to give a signal if there is an MPM.
• If there is an MPM, the company will have to search for “rumour” in “mainstream media”.
  • Here, while companies may be required to keep appropriate technology/ arrangements with external media agencies in place, the same should not be taken to mean that the company is required to track rumour on a daily basis, irrespective of the MPM trigger. 
  • The tracking has to be done for a reasonable period of time backwards. Ideally speaking, the impact of a rumour on price will be reflected within 24-48 hours itself, however, companies may consider keeping a window of 5-10 trading days or any other specific period as part of their internal SOP for the tracking back of rumour in case of an MPM trigger. 
• What does the rumour relate to? Is it about some “definitive” event or information, or generic in nature (say performance, prospects, etc)? Is it about the company or relates to the company specifically, and not generic (for example, sector, country, economy, etc)? If the answer to these questions are yes, see below.
• If the answer is yes, does the rumour relate to an “impending” event or information? That is, there is some event or information within the company which is developing, but the rumour has leaked the same. If yes, confirm it. If no, then deny.
• Do all of this within 24 hours of the MPM Trigger.

[Note – Where a prior intimation of Board meeting of the company has been given under Reg 29 of LODR for such “impending” event or information, the company need not respond to the rumour till the conclusion of the Board meeting.]

In the Table below, we take few situations to understand the applicability of verification of market rumour:

9. What happens if the rumour is confirmed?

• Any reported event or information on which below mentioned pricing norms apply,  the effect on the price of the equity shares of the listed entity due to MPM and confirmation of the reported event or information to be excluded for calculation of the unaffected price for that transaction.
  • Chapter V (preferential issue) of the ICDR Regulations (refer amendment including as part of a scheme of arrangement; or 
  • Chapter VI (QIP) of the ICDR Regulations (refer amendment);
  • Regulation 8 (17) (offer price) or Regulation 9 (6) (listed securities offered as consideration)  of the SAST Regulations (refer amendment);
  • Regulation 19 (price in case of open market buy-back) or Regulation 22B (vi) (computation of lower end of price range in case of buy-back through book building) of the Buy-back regulations (refer amendment).
  • scheme of arrangement involving a listed company (irrespective of whether the scheme involves a preferential issue or not), undertaken in compliance with the requirements of the SEBI Master Circular on Schemes of Arrangement, dated June 20, 2023; or 
  • any other transaction where the pricing is regulatorily required to be linked to the traded price of the scrip, including but not limited to cross border transactions involving the equity instruments (as defined in FEMA NDI Rules) of a listed company (i.e. purchase, sale, issuance of such equity instruments).

10. What happens if the rumor is not verified?

• Unverified event or information cannot be considered as generally available information for the purpose of PIT Regulations. The definition has been amended to exclude unverified event or information reported in print or electronic media (refer amendment). That is to say, merely because the event/information is rumoured, but not confirmed by the company, it cannot be said to be generally available information.
• No “unaffected price” computation; that is, all price movements will be taken into consideration for the purpose of corporate actions 

11. Are any changes in materiality policy required?

• Amendments in law will override. The timeline for responding may be aligned from 24 hours from the reporting of the event or information to 24 hours from the trigger of MPM. The obligation cast on the promoter, director, KMP or SMP may also be inserted in the policy.
• Specific amendments to be made in line with the ISN as indicated below:
  • In addition to the specified international news sources for top 100 listed entities, all listed entities covered by mandatory rumour verification requirement are required to identify the foreign jurisdictions where the company has material business operations, along with a list of English business/ financial news sources from such foreign jurisdictions to be tracked. List of such news sources and parameters applied for determining what would constitute ‘material business operation’ to be published in the materiality policy.
• SOP may be framed additionally to add the responsibility centers, timelines and other operational aspects.
  • This may also cover the time frame upto which rumours will be tracked in mainstream media, in the event of an MPM trigger. 

12. Who will be responsible to ensure compliance?

• Companies will have to define responsibility. Generally speaking, the compliance officer remains responsible to ensure compliance with LODR Regulations [Reg. 6(2)(a)], but internally, for rumours and responses, companies may define the ownership/responsibility centre.
• The Industry Standards refer to “officers” u/s 2(59) of Companies Act. The definition therein is a very broad and inclusive definition. For the purpose of compliance with these regulations, the company may specify the meaning of “officers” to refer to the KMPs and SMPs of the company.  
• If the information has been sought by the company from the promoter, director, KMP, SMP, then the respective promoter, director, KMP, SMP is responsible to give adequate, accurate and timely response to queries raised or explanation sought.
• The stock exchanges shall independently continue to seek clarification from the listed entities on news/rumours pertaining to the listed entity as part of their existing surveillance measures.

13. What are the Industry Standards w.r.t. M&A Transaction Specific Aspects?

• Scope of M&A Transactions 
  • transactions concerning purchase, sale, buyback, delisting of securities of listed company;
  • Preferential issue or any other fund-raising;
  • Scheme of arrangement involving listed entity or any of its subsidiaries
  • Acquisition / sale of undertaking or shareholding of another company;
  • Proposed joint venture between listed entity and another entity.
• Exclusions – transactions undertaken in the ordinary course of business
  • An on-market bulk/ block deal transaction, in respect of listed entity’s securities.
  • An on-market treasury transaction or non-strategic transaction (pursuant to treasury management policies/ objectives – for e.g. investing surplus funds to acquire 0.5% equity stake undertaken by a listed entity in respect of another listed company)
  • Treasury transaction/ non-strategic transaction would generally have the following features –
    • pertains to the treasury function, i.e., investment of surplus funds of the company, 
    • indicates the regular investments made by the company in the stock market, 
    • is not intended to fulfil any strategic expectations of the company, 
    • the size of such investments are similar to other frequent investments,  
    • the company has not raised funds specifically for making such investments, and 
    • decisions with respect to such investments are generally taken by a delegated authority under section 179 of the Companies Act, 2013. 
• Transaction stages –
  • Preparatory stage (where the name of the target/ counterparty is not disclosable); and
    • Signing of NDA, non-binding term sheet, letter of intent, commencement of DD, engagement of professionals for DD, evaluating overall viability of the deal (including for internal management) or engaging registered valuers;
    • Constitution of sub-committee of Board to evaluate material terms/ assess viability, Committee granting an in-principle approval subject to further evaluation.
    • Illustrative language of disclosure provided for each of the two sub-stages discussed  above.
  • Advanced stages (where the name of the target/ counterparty is disclosable)
    • Multi-party bid process is ongoing and sole/ exclusive bidder is pending to be identified/ confirmed or has been confirmed, 
    • parties have entered into binding term-sheet w.r.t. listed target, 
    • where all material commercial terms have been agreed and final approval of Board or delegated board committee is being sought,
    • Illustrative language of disclosure provided for listed bidder(s) and for listed target.
    • Unaffected price to be considered only in case of advanced stages.
• Where company is  not a party to the deal/ does not have ‘knowledge of the deal’³
  • no specific confirmation/ denial would be required.

14. What are the Industry Standards w.r.t. Non M&A Transaction Specific Aspects?

• Illustration of Non-M&A Transactions
  • Whistle-blower complaint received by the Company;
  • Internal Review or Investigation i.r.o. operational / financial aspects of the Company;
  • Potential change in KMPs⁴ (including resignation and/ or removal of KMPs);
  • Situation where MD/CEO is indisposed or unavailable to carry out the role in a regular manner for more than 45 days in any rolling period of 90 days on account of ill health.

• Guiding Principles for rumour verification of non-M&A Transactions 
  • The market rumour should provide specific identifiable details:
    • details of the matter/ event; or 
    • Should provide quotes or be attributed to sources who are reasonably expected to be knowledgeable about the matter,
    • Excludes market rumours that are vague or general in nature.
  • The market rumour should be i.r.o impending event i.e imminent event, close at hand or about to happen,
  • The market rumour should result in MPM.

Also see our related resources:

1. SEBI notifies rumour verification requirements, application of market cap based provisions etc.
2. Silence no more golden: New regulatory regime forces top listed companies to respond to rumours
3. Getting material on “material” events and information: SEBI notifies amendments to Listing Regulations
4. Youtube lecture: Demystifying rumour verification by listed entities

1. SEBI Circular dated September 30, 2023 and SEBI Circular dated January 25, 2024 ↩︎