This article was written by Gowthaman Asokan Pursuit of one Executive Certificate Course in Corporate Governance for Directors and CXOs out of Capability arbitrage.
This article was edited and published by Shashwat Kaushik.
introduction
The question that needs to be answered is: What are the Listing Obligations and Disclosure Requirements (LODR) and why are they needed? How does it help and who benefits from it and what disadvantages would such a requirement have?
The LODR is a lengthy document and it would be quite tedious to provide a summary. The main features of the LODR have been presented in this overview.
Security Contracts (Regulation) Act (1956)
In order for a company to be traded on the stock exchange, an agreement called a listing agreement must be made between the company (that wants to be listed on the stock exchange) and the stock exchange. The Listing Agreement was originally inserted into Section 21 of the Securities Contract Act (1956), which states: “If the securities are listed on a recognized stock exchange at the request of a person, that person must comply with the terms and conditions of the listing agreement with that stock exchange.”
The law provides that the securities mentioned below must follow and comply with the regulations applicable to them; otherwise, penalties may be imposed on them or they may be delisted.
- Certain securities listed on the main stock exchange or SME Exchange or an institutional trading platform.
- Non-convertible debt securities, non-convertible redeemable preferred stock, perpetual debt securities, perpetual non-cumulative preferred stock.
- Indian depositary receipts.
- Securitized Debt Securities.
- Shares issued by mutual funds.
- Any other securities determined by the Board of Directors.
Listing requirements and disclosure requirements (LODR)
The LODR is a set of requirements introduced in 2015 by SEBI (Securities and Exchange Board of India, a statutory body of the Government of India that regulates the Indian securities market by ensuring transparency and protecting investors’ interests). , improve corporate governance practices and increase transparency on the stock market.
SEBI has updated the LODR regularly to keep pace with existing market conditions and regulatory developments. The requirements are designed and amended to ensure that investors have timely access to details about listed companies, that companies are held accountable for their actions and financial disclosures, and that investors’ interests are protected through disclosure standards and governance practices, thereby increasing investor confidence.
The LODR is essentially designed to:
- Ensure transparency and accountability in financial markets
- Protect investors and maintain market integrity
- Prevent fraud, mismanagement and market manipulation to create a fair market
- Promote a healthy investment environment that strengthens investor confidence
Support overall economic development and growth through a reliable and stable financial system.
The LODR is divided into 12 chapters and 1 appendix, as shown below:
- introduction
- Principles of Disclosures and Obligations
- Provisions of the Companies Act, 2013 governing debt instruments
- Listing of non-convertible debentures and non-convertible redeemable preferred stock, or both.
- Shared commitments.
- Intimations and Disclosures.
- Compliance with various regulations
- Listing of certain securities and debt instruments
- Listing of securitized debt securities
- Compliance calendar
- Compliance for listed companies under Companies Act, 2013
- Penalties and violations
Appendix: Website Requirements Checklist
The introductory chapter introduces the framework, its history and how it works. In addition, the essential features of the listing regulations, the uniform listing agreement, the date of applicability of the regulations, the applicability of the regulations, the importance of the listed company and the obligations of the listed companies are discussed.
The following chapters describe the disclosure principles, the provisions of the Companies Act 2013 governing debt instruments, general obligations and disclosure of listed securities.
The regulations are divided into 2 parts,
- The substantive provisions contained in the main body of the regulations and
- The procedural specifications are available in the form of schedules and regulations.
Substantive provisions contained in the body of the Regulation
Some of the substantive provisions contained in the body cover the core requirements that companies must follow, including (but not limited to)
Corporate management
This regulation determines the composition of the board, including independent directors. This also includes the formation of committees such as the audit committee, the compensation committee and the nomination committee.
Disclosure requirements
This section lists the details that the company must disclose to investors. These details may include financial statements, quarterly results, annual reports, shareholder structure, changes and significant shareholders, and other disclosures that could affect the company’s financial condition or operations.
Corporate actions
This section addresses the requirements for the disclosure and handling of mergers, divisions and acquisitions.
Compliance calendar
Another component of the LODR is the compliance calendar, which provides dates and a schedule before which the respective submissions of the forms and schedules to SEBI must be made.
Website Requirements Checklist
The listed companies were provided with a comprehensive checklist of requirements and details to be provided on their website.
Current changes in LODR
The LODR is subject to change depending on market demand. The last significant change would be the change in how rumors are handled in the mainstream media.
Dealing with rumors in the mainstream media
The 100 largest listed companies as of February 1, 2024 and the 250 listed companies as of August 1, 2024 are required to either confirm, deny or clarify all events/information about upcoming certain material events reported in the “mainstream media” / Information within 24 hours. To date, there has been no regulatory obligation requiring listed companies to combat such rumors. If the listed company confirms such a rumor, it must provide details on the current status of such event/information.
challenges
Challenges to complying with the LODR include compliance costs, complexity, administrative burden and the possibility of over-regulation. However, this is offset by opportunities such as building market reputation, leveraging technology, aligning with global standards and integrating sustainability reporting. Regarding threats such as regulatory changes, penalties, competitive disadvantages and cybersecurity risks.
From the above contextualization, we can conclude that SEBI’s monitoring of the companies through LODR and its tools such as schedules, regulations and legal requirements allows investors to have confidence in the systems and processes that encourage them to invest in the securities to invest in the stock market.
Diploma
The recent updates show that SEBI is constantly looking for ways to boost stakeholder confidence by updating the LODR as per the market situation.
In a VUCA (Volatility, Uncertainty, Complexity and Ambiguity) world, it is imperative that such regulations are enacted, amended and reviewed. In a world where uncertainty is at its peak, we should be prepared and committed to SEBI prescribing stringent and rapid changes to meet the needs of investors. Protecting rights and addressing investors’ complaints are aimed at attracting more investors from home and abroad. The LODR is the main reason for investors to have confidence in the system.
