Sebi looks to introduce disclosure requirements for unlisted companies

Capital markets regulator Sebi is looking to introduce disclosure requirements for unlisted companies, which are part of a business conglomerate. While listed entities are subject to comprehensive disclosure requirements, the same levels of disclosure requirements are not applicable for unlisted companies. There is a need to identify, monitor and manage risks introduced into the securities market ecosystem by unlisted companies in a conglomerate with a complex set of listed and unlisted associates," Sebi said in its annual report for 2022-23.
Also, the regulator plans to facilitate transparency around the conglomerate by enhancing the group-level reporting of transactions.

"Disclosure of details of cross-holding and material financial transactions within the conglomerate are also some of the matters that Sebi would examine to be disclosed on an annual basis," the annual report noted. The country's top business conglomerates include Tata Group, Reliance Industries, Adani Group, Aditya Birla Group and Bajaj Group. In addition, the regulator is planning to review the eligibility criteria for introduction of stocks in the derivatives segment. Derivatives contracts on scrips can be traded on recognised stock exchanges only if the underlying securities satisfy certain criteria.

The last review of the eligibility criteria for introduction of stocks in derivatives was done in 2018. Since then, broad market parameters reflecting the size and liquidity of the cash market such as market capitalisation and turnover have moved up considerably. "Accordingly, it is proposed to review the eligibility criteria for introduction and continuation of stocks in the derivatives segment," Sebi said. In order to strengthen volatility management and minimise information asymmetry for scrips and contracts in equity derivatives segment, the capital markets regulator is in the process of strengthening the existing framework of price band for these scrips and their derivatives contracts.

The new framework would limit the impact of a possible price risk arising out of sudden extreme market volatility, fat finger error or issues with systems of a trading member. Scrips having derivative contracts on them have dynamic price band both for scrips and such derivative contracts. These price bands can be flexed, subject to certain conditions and the trading activity in the scrip. Among other measures, Sebi is planning to review the pricing mechanism in case of delisting.

In particular, a review of the reverse book-building process and exploring other alternatives to determine exit price in case of voluntary delisting would be undertaken. The regulator also plans to review the compulsory delisting framework adopted by the stock exchange.

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