In an effort to ensure transparency and reduce information asymmetry in the securities market, SEBI had introduced system driven disclosure mechanism in phases from 2015 for disclosures to be made by certain entities under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) and SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) in relation to acquisition, disposal or pledge of securities.
Vide circular dated September 09, 2020 (2020 Circular), SEBI has launched another phase of system driven disclosures pertaining to continual disclosures to be made by members of promoter group and designated persons under Regulation 7(2) of the PIT Regulations. Under Regulation 7(2) of PIT Regulations, every promoter, member of the promoter group, designated persons and directors of every listed company are required to disclose to the company, within two trading days, transactions relating to acquisition or disposal of securities if the value of such transaction, either individually or combined value over a calender quarter, is above ten lakh rupees.
SEBI, vide circular dated December 01, 2015, rolled out the system driven disclosure mechanism and detailed the procedure to be adopted for its implementation. In the first phase, disclosures pertaining to changes in shareholding of promoter and promoter group under the SAST Regulations and PIT Regulations were covered. In the second phase, in May 2018, disclosures by non-promoters under Regulation 29(1) and (2) of SAST Regulations, and disclosures by directors and employees of listed companies under Regulation 7(2) of the PIT Regulations were covered under the system driven disclosure mechanism. All the disclosures covered under the system driven framework till date are to run parallelly with the existing framework, where the concerned entities are required to make independent disclosures.
With the 2020 Circular, SEBI has expanded the scope of the system driven disclosure mechanism pertaining to disclosures made under Regulation 7(2) of the PIT Regulations. The mechanism will now cover all disclosures pertaining to trading in equity shares and equity derivative instruments by ‘designated persons’ and members of the promoter group, in addition to promoters and directors of a listed entity. This was done in light of the recent amendments to the PIT Regulations, where the obligation to make continual disclosures under Regulation 7(2) was extended to members of the promoter group and ‘designated persons’.
It is pertinent to note that, unlike the previous phases where the system driven disclosures ran parallelly with the independent disclosures by the concerned entities, the 2020 Circular provided an end date of March 31, 2021 for the existing system of independent disclosures by the concerned entities.
Being an automated process, the system driven disclosure mechanism will take away the human element, and reduce the possibility of an error in disclosure or failure to make a disclosure by relevant entities. The prompt disclosures will help in ensuring transparency in the market. Moreover, post March 31, 2021, the entities which are currently required to make disclosures under Regulation 7(2) will also benefit from the removal of the obligation on them to make independent disclosures.